Every week or every month money is deducted from the wages and salaries of more than 500,000 employees and paid over to their pension funds. This employee contribution is generally matched by a contribution from the employer and the combined amounts go to make up the employee pension fund.

At the end of December there was some £30.8 billion (€39.11 billion) in Irish occupational pensions funds.

These funds are the responsibility of trustees who are appointed by the employers and by the employees. But because most trustees are not professional fund managers or pension fund administrators, they generally delegate the investment and administration of their fund to specialists.

The trustees then rely on these specialists to act in the best interests of the funds and its members. The pension funds will be invested in equities and fixed interest bonds and cash with the aim of ensuring that there will be sufficient funds available to pay the pensions of the employees when they retire. In the Irish market usually about 70 to 75 per cent of a fund is invested in equities.

But how secure are the pension funds of employees and who ensures that they are managed effectively and efficiently on their behalf? In the wake of the revelation that one AIB subsidiary put oil exploration shares being sold by another AIB subsidiary into two employee pension funds, are employees protected against the dumping of poorly performing shares in their funds? Who regulates the trustees and the pension fund managers?

It is the responsibility of the pension fund trustees to ensure that members funds are managed efficiently and effectively. Trustees are overseen by the Pensions Board through mandatory reporting of the valuation of funds and because it is the avenue for complaints from pension fund members.

The trustees must monitor the performance of any agents to whom they delegate their responsibilities, such as fund managers. And fund managers operate according to a voluntary code of practice with, as one put it, "the overriding principles of prudence and treating all customers equally". Treating customers equally meant that buy-and-sell deals were spread equally between clients portfolios, he explained.

At the end of the day it is the pension fund trustees who are responsible to the members of the fund for safeguarding their money. They are expected to ensure that the fund is invested as "a prudent man" would invest and in line with the rules of the particular pension scheme.

These rules can be different in each scheme but they are usually drafted to allow a fairly wide range of investments in order not to restrict the fund managers ability to get the best returns for members. But it is the pension fund managers who actually invest the funds on behalf of the trustees.

The trustees can set general investment guidelines for their fund managers. For example, they can require that all investments are in long-term income generating assets, that no speculative assets are put into the pension fund, the breakdown between equities and fixed interest bonds and whether or not there can be any self-investment - where the fund invests in the shares of the employing company.

But these guidelines are never stock specific, that is they never specify which shares or assets to buy and sell, according to fund managers. And one pensions' specialist said that many trustees do not set any investment guidelines.

The trustees have a duty in law to monitor the performance of the fund managers. To do this they get regular statements from their fund managers. In segregated funds - where the funds are invested in individual equities and bonds - generally information is provided quarterly to trustees. It includes: a valuation statement; a list of all the transactions - buying and selling of assets during the period; and an income statement - dividends received during the period.

The alternative type of fund is a unitised fund. This is generally where the fund is not big enough to be invested in individual assets so it is invested in a unit fund (a collection of equities owned by a number of investors). In this case, the trustees get quarterly statements of the number of units they own and the price of each unit which give the value of the fund.

Armed with this information, trustees should be able to ensure that their fund manager is acting in accordance with the guidelines laid down and that the fund is being properly invested. At the very least where trustees study the information they could spot any divergence from guidelines or question any investment they are concerned about.

Where the trustees of employee pension funds set broad guidelines, the fund managers are required to make their day-to-day investment decisions within these guidelines. Since the guidelines are generally very broad, the fund managers have a high degree of flexibility in what they buy or sell for the fund.

But is it appropriate to invest pension fund assets in oil or other high-risk exploration shares? One fund manager explained that it would generally not be considered good practice to put oil company or any high-risk type shares into a pension fund.

"What pension fund managers look for is investments that can provide prospective earnings streams or dividends and with exploration stocks you could be waiting 10 years for dividends," he said. Once an investment can produce dividends it goes on to a prospective investment sheet from which fund managers will pick shares in proportion to their market capitalisation, he explained.

"If there is no dividend we stay away. We aim to get good returns for the pension fund and it is true that higher risk stocks can lead to higher returns but with pensions, prudence is the first principle. We do not tend to move much outside of the standard indices. Risk is controlled by a good spread of investments. We stay away from the boom and bust stocks and stick with the long-term performers," he said. If a medium-risk stock was bought it would be very small in proportion to the fund and would only be included if the trustees wanted this type of strategy, he added.

Where a pension scheme's trustees particularly want to invest in small or start-up operations, the fund manager would suggest spreading the risk by investing in a venture capital fund, where there would be a number of small or start-up operations instead of going into one or two specific investments, he said.

The Central Bank requires that funds managers have a written agreement with trustees setting out the duties and responsibilities of both sides. However, in some cases these agreements are not yet in place with apparently some reluctance by some trustees to put the full details of their arrangements on paper.

The so-called "investment manager agreement" has been the subject of long negotiations between the fund managers and the representatives of pension fund trustees. According to a recent Irish Association of Pension Funds (IAPF) survey, some 72 per cent of schemes now have an agreement in place, but just 54 per cent of all schemes had written statements of investment policies.

Since investment manager agreements and statements of investment policies define the relationship between trustees and fund managers and the duties and responsibilities of both parties, trustees could be in breach of their responsibilities if they were not put in place.

A spokesman for the IAPF commented that Irish pensions funds were "very well managed".

"I have never come across a case of trustees having problems with fund management. While there may sometimes be problems with the investment performance of a particular fund manager there haven't been any general fund management problems."

On regulation, he said the current voluntary code of best practice, under which fund managers operated, worked very well and the industry would not want to see regulation which "could work against the ability of the fund manager to maximise the returns" from investing the fund.

"The reason we have such a well-developed pension here is that we don't have too much regulation. In other places regulation prevents fund managers moving money by setting rules about investing on other countries and in different classes of assets. This is not good. It doesn't allow fund managers to maximise returns. To the best of my knowledge there has never been a case of mismanagement by fund managers. Trustees are very well informed and very vocal," he insisted. Where pension fund members are not happy about how their fund is being run they can make a complaint to the Pensions Board which can direct the pension scheme itself to deal with the complaint or in the case of a serious problem can investigate the scheme.

The Pensions Board has power to inspect the books and records of pension schemes, to enter premises and to require people to give explanations. It can apply to the High Court to have trustees suspended or replaced to protect members interests and there are penalties if a trustee is found by the courts not to have carried out his/her duties properly. These include fines of up to £10,000 or imprisonment of up to two years or both.

In addition, there are "whistleblowing" provisions in place to protect the interests of pension fund members. These require a specified range of people involved in the operation of pension schemes to report suspected or actual fraud or material misappropriation of funds to the Pensions Board. The specified persons include auditors, actuaries, trustees, insurance intermediaries, investment advisers and anyone who has been assisting the trustees.