IRELAND - Ireland's National Pensions Reserve Fund (NPRF) has seen its original purpose of supporting future retirees change in light of the ongoing crisis, Jerry Moriarty of the Irish Association of Pension Funds (IAPF) has said.

Moriarty, director of policy at the lobbying organisation, was speaking after the Irish government unveiled proposals that would allow the NPRF to invest in Irish bonds for the first time, so far forbidden under the sovereign fund's investment guidelines.

The NPRF, originally set up to offset future state pension shortfalls, has recently seen parts of its assets used to support weakened Irish banks, with €7bn spent on buying shares in Allied Irish Bank and the Bank of Ireland.

Moriarty said: "It's fair to say that certain objective has changed a lot. If you look, there are a number of areas where the NPRF is now looking to invest in areas it probably wouldn't in other circumstances."

Areas include a €550m investment in water meters that will see the government charge for domestic water usage, as well as an increase in infrastructure investments.

Moriarty was hopeful the NPRF would still be able to live up to its initial purpose of assisting with pension payments.

"One would hope that it will, but that does involve getting over the hurdles that are ahead of us over then next 10 to 20 years," he said.

"I don't think it's different in many ways to private individuals sacrificing their long-term savings because of their immediate short-term needs.

"In effect, what is happening to the NPRF is just that on a bigger scale."

Other European sovereign funds, such as Spain's Fondo de Reserva de Seguridad Social, have noticably increased their holdings in state bonds in recent years, to the point where a majority of assets is held in Spanish bonds.

But LCP Ireland's Martin Haugh does not think such an approach should be the way forward for the NPRF.

"It certainly wouldn't be a prudent investment to have that kind of over-exposure to any country," he said.

The National Treasury Management Agency declined to comment when asked how significant an allocation would be made toward Irish debt, or if it would become the sole buyer of the country's bond in the forseeable future.

Moriarty went on to say that if proposals put forward by the Society of Actuaries in Ireland and the IAPF earlier this year were introduced - linking the country's annuities market to sovereign bonds rather than German bond yields - then a shift in general pension fund investment strategy could follow.

However, he did say that any shift in strategy would be scrutinised by each scheme's trustees.

"Irrespective of the country's needs, trustees are still under quite strict requirements, and they have to fulfill their duties in investing in a prudent way," he said, explaining that it would have to be a investment decision approached like any other, weighing up the risks versus the rewards.

The Irish Actuaries proposed the introduction of sovereign annuities that would be linked to Irish bonds to reduce scheme's reliance on the general annuity market that often trades using German bond yields as a reference point, a system that has previously been branded as no longer sustainable.