Legislation to set up the new State pension funds should ensure their management is entirely independent of the Government or the authorities, a conference in Dublin heard yesterday.

Speaking at the Irish Association of Pension Funds' conference, Mr John MacNaughton, president and chief executive of the Canadian Pension Plan Investment Board, said the priority had to be the independence of the fund and its managers.

"In Finance Minister Mr McCreevy's words, this is not going to be some kind of lottery fund for the Minister of the day to dip in and out of," he said.

The Canadian plan, which was set up two years ago, may end up a similar size to the proposed Irish funds. So far it is managing a small amount of money but within a decade a fund of around 100 billion Canadian dollars is envisaged.

However, it is funded by employers and employees and is designed to work as an occupational pension.

The Irish plan is funded by all taxpayers but is for the benefit of social welfare pensions and public servants. Legislation is expected by midsummer but key issues yet to be resolved include how the funds will be structured, who will manage them, the make up of the board of commissioners and the investment strategy.

The Canadian fund is completely independent of government.

It is effectively an investment company building a diversified portfolio of assets.

Its objectives are to manage the assets in the best interest of contributors and beneficiaries and to maximise investment return without undue risk.

However, the Finance Minister does review the plan every three years, including the rules and responsibilities of the investment board.

It does produce an annual report and quarterly reviews as well as holding meetings across the provinces. At the moment it invests all its money in equities to offset the large amounts of bonds held by the Government.

However, none is in so-called active funds, which Mr MacNaughton points out generally underperform and are more expensive. Instead his team buys index funds. They are planning to diversify into investment banking, some holding of public companies, venture capital and real estate. But active equity investment is a long way down the road if at all.

Most of the funds are invested in Canada, which is unlikely to happen here. Under Canadian legislation, only 30 per cent of any fund is allowed to be held abroad.

The likely equivalent here is the National Treasury Management Agency (NTMA), which Mr McCreevy has indicated will be the main player. It will probably need to take on a few key investment professionals.

It is not yet clear whether these will direct all the investment decisions or merely make broad decisions on how much of the fund is active or passive, or what percentage should be in international equities and so on. But it will have a heavy real asset weighting and clear objectives based on benchmarking, according to Mr John Corrigan of the NTMA. In Canada, a nominating committee recommends directors with expertise in investment, business, economics and financial management. None are chosen for the sectional interest or membership of the unions or business representative groups

In addition, any change in the mandate of the fund requires the approval of the federal Canadian parliament.