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Irish finance minister calls on pension funds to consider infrastructure

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IRELAND – The Irish pension industry should play a role in financing the country's infrastructure needs, the minister for finance has told an industry gathering in Dublin.

During his keynote speech at the Life and Pension Industry Conference, Michael Noonan also lamented the low level of private pension coverage in the country and said it was of "major concern" to the government.

Calling on the pension industry to support Ireland's recovery, he noted the introduction of Irish Amortising Bonds by the National Treasury Management Agency (NTMA) as a "welcome diversification of Ireland's funding programme" and stressed renewed interest from international investors in the country's sovereign debt.

"However, it is equally important domestic investors have the confidence to invest in Ireland," he said. "The NTMA, through its various bodies, and the industry are developing products to facilitate this."

He also urged pension funds to invest in infrastructure projects, promising these investments could be on commercial terms, ensuring stable cash flows.

Noonan said the status quo had largely seen such projects in Ireland and across Europe financed by banks in the past.

"This is in contrast to the deeper markets that exist in North America, Canada and Australia, where pension funds, insurance companies and equity funds play a greater role," he said.

The minister said his department was "exploring financing mechanisms to facilitate private pension funds' investment" in a €2.25bn infrastructure programme announced by the government last summer, aimed at launching a number of Public Private Partnerships for school, hospital and road construction.

As a model of such PPPs with pension funds, he cited the construction of eight schools across Ireland that would receive €15m in funding from BAM PPP PGGM Infrastructure Cooperatie, a joint venture between Royal BAM Group and the €130bn PGGM, the Dutch pension manager focused on healthcare funds.

Noonan also touted the proposed Irish Real Estate Investment Trusts (REIT), announced as part of last December's budget.

"The primary objective of REITs is to facilitate the attraction of foreign investment capital to the Irish property market," he said, "but they also have a very real role to play in offering a lower-risk property investment alternative for the pension savings of Irish investors."

He said the lower risk was particularly important in a country where individuals previously viewed the rental yield of their small property portfolio as retirement income – only for the Irish property crash to end such dreams.

Noonan stressed the low-cost benefits of the potential REIT, as well as its ability to diversify the risk of any property investment.

"They are specifically designed to be income-producing investments and so may be a sustainable, long-term alternative option for retirement and pension savings," he added.

However, the minister also said the issue of low pension coverage was a "major concern" for the government and called on the industry to help remedy the situation.

"With certainty now delivered in the area of tax relief," he said – referring to the decision to lower the tax relief threshold to €60,000 – "it is incumbent on the industry to develop competitive, cost effective and rewarding products to encourage low and middle income earners to invest".

The country's minister for social protection Joan Burton recently confirmed that a forthcoming OECD report on Irish pension policy would "include consideration of an auto-enrolment system", which the OECD indicated in October last year.

Burton has previously said the report would trigger "major" pension reforms and in the past month has repeatedly mentioned the possibility of launching a universal pension scheme, likely to be administered by the NTMA.

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