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PUBLIC PENSION FUND MANAGEMENT

PUBLIC PENSION FUND MANAGEMENT. NATIONAL PENSIONS RESERVE FUND IN IRELAND. Anne Maher Washington DC Chief Executive 24-26 September 01 The Pensions Board Ireland . WHAT I WILL COVER. Background Objective and Process National Pensions Reserve Fund Act Establishment and Strategy

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PUBLIC PENSION FUND MANAGEMENT

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  1. PUBLIC PENSION FUND MANAGEMENT NATIONAL PENSIONS RESERVE FUND IN IRELAND Anne Maher Washington DC Chief Executive 24-26 September 01 The Pensions Board Ireland

  2. WHAT I WILL COVER • Background • Objective and Process • National Pensions Reserve Fund Act • Establishment and Strategy • Current Position • Issues and Prospects

  3. BACKGROUND IRELAND HAS • FIRST PILLAR Contributory (and non-contributory) 31% average industrial earnings Pay-As-You-Go Sustainable • PUBLIC SERVICE PENSIONS Facing big cost increase (doubles over next 15 years) • DEMOGRAPHICS Favourable for 10 years

  4. BACKGROUND (continued) IRELAND HAS • ECONOMY Modern and successful GDP growth of 9.9% per annum for last 5 years • INVESTMENT Domestic and international experience • FUNDED PENSIONS Well developed Covering 50% workforce • NATIONAL PENSIONS POLICY INITIATIVE Examined long-term retirement provision

  5. OBJECTIVE AND MOTIVATION • To secure pensions in retirement for progressively ageing population

  6. PROCESS • FIRST PILLAR National Pensions Policy Initiative Report 1998 • PUBLIC SERVICE PENSIONS Commission on Public Service Pensions Report 2000 • BUDGET STRATEGY Dept. of Finance Report of Budgetary Strategy for Ageing 1999 LED TO • TEMPORARY HOLDING FUND FOR SUPERANNUATION LIABILITIES ACT 1999 • NATIONAL PENSIONS RESERVE FUND BILL 2000 • NATIONAL PENSIONS RESERVE FUND ACT 2000

  7. NATIONAL PENSIONS RESERVE FUND ACT 2000 • Establishes Fund • Obligation to pay 1% GNP per annum (plus additional sums if approved by Parliament) • Sets up independent Commission • Requires strictly commercial investment mandate • Has prohibition on drawdowns until 2025 • Appoints NTMA as manager • Allows Commission to appoint investment managers and custodians • Provides for accountability and annual reports • Requires annual audit • Winds up Temporary Holding Fund

  8. ESTABLISHMENT OF FUND • Fund set up on 2 April 2001 • 7.2 billion Euros rising to 41 billion Euros by 2025 • Commission appointed 7 members NTMA to act as manager • Agreement of Investment Strategy

  9. INVESTMENT STRATEGY Issues • Asset allocation and manager structure • Eurozone/Non-Eurozone Equity Split • Active/Passive Split

  10. INVESTMENT STRATEGY (continued) Agreed Strategy

  11. CURRENT POSITION • Consultants appointed Global Custody Manager Selection Transition Manager Selection • Manager Selection Mandates out to tender

  12. Current Position (continued) Mandates out to Tender • 3 Pan European Equity Activity Core portfolios valued at about 300 million Euros each • 1 US Equity Enhanced Index portfolio valued at about 350 million Euros • 1 US Equity Active Growth portfolio valued at about 300 million Euros • 1 US Equity Active Value portfolio valued at about 300 million Euros • 1 (or possibly 2) Japanese Equity Active portfolio(s) valued in total at about 300 million Euros • 1 Pacific Basin ex Japan Equity Active portfolio valued at about 90 million Euros • 1 (or possibly more) Eurozone Equity Passive portfolio(s) valued in total at about 2 billion Euros • 1 (or possibly 2) US Equity Passive portfolio(s) valued in total at about 625 million Euros • 1 Eurozone Long Bond Active portfolio valued at about 350 million Euros • 2 Global Equity Active portfolios valued at 350 million Euros each

  13. Current Position (continued) • TENDER PROCESS Stage One Stage Two Criteria • COMMITTING THE ASSETS Pace Average in over period of months?

  14. ISSUES • Government Access Independent Commission Commercial investment mandate • Distortion of Markets and Corporate Governance Geographic distribution at discretion of Commission Controlling interest in any company prohibited • Targeted Investment No mixing of financial and social objectives Commercial investment mandate

  15. ISSUES (continued) • Manager Selection Commission is international Subject to EU procurement of services for public funds Directives • Drawdowns Prohibition until 2025 Must be determined by increases in over 65s • Changes in Circumstances Provides for continued monitoring

  16. PUBLIC REACTION • Very little! Parliamentary, political or public • Role of NTMA as manager Commission should have had freedom to appoint • Appointment of Commissioners Conflicts of interest Lack of representation • Other (better?) uses for monies Contribution to individual pension policies

  17. CONCLUSION • Part of overall Irish pension reform/planning • Broad consensus that it is right course • Fund is in place • Wide range of safeguards And I believe it should achieve its objective.

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