IRELAND - The Irish government should stop its annual contribution to the National Pension Reserve Fund (NPRF), now that the fiscal position has deteriorated sharply, the Organisation for Economic Co-operation and Development (OECD) has warned.

The organisation today called for a law change that would enable the government to cease its annual payments of almost €2bn.

According to the OECD, the state, which contributes 1% of gross national product (GNP) to the fund every year - a sum worth €1.6bn to the fund in 2007 -  should stop the payments for a few years until the financial situation has recovered again.

Sebastian Barnes, senior economist at the OECD, told IPE: "An argument is that money is tight and the government might want to concentrate its money on other things, like public investments, or just running public services."

Another reason to stop the payments is as state finances have moved from a surplus to a deficit, the government's contributions might have to be funded through borrowings if they continued to contribute.

According to the OECD "it doesn't make sense to borrow money to put into the NPRF" at times when financial markets have done so badly.

"Particularly to meet the 3% Maastricht limits, it is more sensible to suspend payments into the NPRF for a little while in severe times than cut back on public investments," said Barnes.

If the Irish government does suspend its payments, it could, however, make up for the missed contributions at a later stage.

The NPRF legislation was written in 2005 by former finance minister and now EU commissioner Charlie McCreevy so it was virtually impossible for the government to raid the fund's contents though it could at least suspend payments if necessary. (See earlier IPE story: Reserve fund takes first steps)

In July, officials of the Irish ministry of finance denied the government is working on legislation to take a two-year pension holiday from its payments into the fund, after claims emerged over the weekend suggesting the government is reviewing its annual contributions into the reserve fund to save up money to be spent elsewhere. (See earlier IPE story: ‘Ireland denies plans for 'pension holiday')

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