1. PUBLIC PENSION FUND MANAGEMENT NATIONAL PENSIONS RESERVE FUND IN IRELAND Anne MaherWashington DC Chief Executive24-26 September 01 The Pensions Board Ireland

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

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

6. 6.  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 PROCESS

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

10. 10. INVESTMENT STRATEGY (continued) Agreed Strategy

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

12. 12. 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 Current Position (continued)

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

14. 14.  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 ISSUES

15. 15.  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 ISSUES (continued)

16. 16.  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 PUBLIC REACTION

17. 17.  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. CONCLUSION