THE rules should be changed to allow pension funds to put money into Irish businesses, a leading broker body told an Oireachtas Committee yesterday.
Private pension funds have €72bn invested, but just €3.6bn of this is invested in Ireland.
The Irish Brokers' Association (IBA) said that firms in this country could get a €7bn boost if private-sector pension funds were allowed to invest directly in small and medium-sized companies.
IBA delegate Aidan McLoughlin said there were legal restrictions which mean pensions funds here were unable to invest in domestic firms.
As the law stands, trustees of a pension fund that invested in an Irish company, especially if it was not a stock-market quoted company, would leave themselves open to prosecution by the scheme's members for investing in an illiquid investment if the firm was to collapse, Mr McLoughlin said.
This is the main reason just 5.1pc of the assets of pension funds in this country are invested in domestic businesses, compared with 43pc in the US.
"Trustees fear being prosecuted for not diversifying sufficiently," he told the Oireachtas Committee on Finance.
But a change in the rules would mean the potential inflows to Irish companies from pension funds could amount to €7.2bn.
"The second way in which pension funds can assist the economic recovery is through investment in government debt," he added.
This could help ensure the yield, or interest rate, on the State's debt fell. It would also help reduce the deficits in pension funds.
"Also, the burden placed on employers will be reduced or eliminated leaving greater resources for expansion and job creation," Mr McLoughlin explained.
Another area where pension funds could benefit the economy is through investment in infrastructure and other state assets.
If the Australian experience was replicated inflows could be between €3bn and €7bn, the IBA said.
The net effect would be to reduce the cost of Irish government debt.
"We are calling for a removal of all legal and Revenue restrictions on investment by pension funds in these Irish investment options.
"We believe that by working with the relevant industry players to create investment vehicles with sufficient scale, diversity and liquidity this will facilitate infrastructural and private-equity investment.
"We strongly advise the committee to consider engaging in an 'Own Ireland, Grow Ireland' campaign to boost participation in pension structures and remove other negatives to pension investing."
Meanwhile, the IBA told the committee that any cut in the tax reliefs available to workers for investing in a pension would have a serious impact on pension funding.
It would also have a negative impact on the country's ability to attract business leaders of foreign-owned companies, the broker body said.