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Saturday, 27th April 2024 |
| World Bank rates Irish pension coverage seventh out of 43 countries studied |
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Irish occupational pension assets as a percentage of GDP ranked seventh out of 43 countries surveyed according to a comprehensive study by the World Bank. This compares well with other economies and, even when pension assets are combined with other long-term savings, Ireland still ranks amongst the most providently provided for nations. The new National Pensions Reserve Fund initiative ensures that this comparison will remain favorable in the coming years.
A report commissioned by the Irish Association of Pension Funds (IAPF) finds that Irish pension funds have grown substantially and now amount to 60 per cent of GNP. Speaking at the launch of the report John Feely, chairman of the IAPF, said ‘This growth rate shows that Irish pension funds have the ability to ride out economic and equity cycles and take a long term view.’
Growing at a rate of 17 per cent per annum over the last 25 years, Irish pensions are now over twice the size of the Irish gilt market and two thirds of the capitalization of the Irish stock market. From being a relatively insignificant savings medium in 1975, Irish pension assets are now the dominant form of long-term savings in Ireland.
Entitled ‘Irish Pension Funds: Size, Growth and Composition of Assets’, the report was prepared by Shane F. Whelan and Co. and sets out to chronicle the growth, the composition between the principal modes of investment, and how the assets have been invested around the world’s capital markets over the past two decades.
According to the IAPF, Irish pension money managed by Irish financial institutions amounted to IEP41.4 billion at the end of 2000. This amount exceeds the expenditure by individuals on goods and services in Ireland in 2000 (IEP39.9 billion), and is almost double the size of the national debt (IEP23.2 billion at the end of 2000).
The asset allocation of Irish pension funds also has an important macroeconomic dimension as such funds now represent almost two-thirds of the long-term mobile capital in Ireland. Throughout most of the 1980s exchange controls limited the extent of new overseas investments and, though subsequently dismantled, forms of moral persuasion were then used to encourage pension funds to invest more in Ireland. Such attempts however proved ineffectual.
The proportion invested in Irish assets has fallen dramatically over the period, with most of the fall occurring in the last three years. From almost three-quarters invested in Ireland back in 1983 or even as late as 1990, there is now only one third in Irish assets. The second trend is for the exposure to international equities to increase at the expense primarily of fixed interest and Irish equities.
The major trends in the asset allocation can be identified with a significant change in the environment of investment in Ireland. The abolition of exchange controls on overseas investments on January 1st 1989, led to a portfolio shift of 10 per cent of total assets in the late 1980s from fixed interest to international equities. Another key shift of the order of 10 per cent of total assets accompanied the adoption of the euro at the end of the 1990s when investment was switched from Irish equities into other euro-denominated equities. |
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| Article appeared in the November 2001 issue.
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