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A Lingus in stark warning over pensions

Tuesday, October 09 10:20:02

Aer Lingus today warned staff that, unless its near three quarters of a billion euro pension deficit is addressed, retirees of the airline could be left with just 4pc of the pension pot to draw on.

As of May 31st 2012, the IASS pension shortfall was approximately E748m.

"To put this in perspective, if the IASS had been wound up on May 31st 2012, current employees and their beneficiaries not yet in receipt of a pension would have received approximately 4pc of their expected IASS pension benefits," the airline said.

To resolve the pension issue, Aer Lingus has proposed that the IASS would be closed to new members and benefit accrual for current members would cease.

The IASS investment policy would be changed by the trustees to reduce risk by investing in bonds whose cash flows broadly match obligations.

This approach would result in higher pensions than on a wind-up of the IASS but is at the sole discretion of the IASS trustees.

Aer Lingus would make no financial contribution to the IASS (beyond its regular contributions, which in any event would be discontinued when the IASS closes to future contributions). It would establish new Defined Contribution (DC) arrangements in respect of future service of its own employees. Subject to the uptake of Aer Lingus employees, the overall increase in employment costs attributable to the new DC scheme is not expected to be significant.

Aer Lingus said it is prepared to put in place arrangements to improve the likely future pensions of affected IASS members. Any such arrangements are likely to include a once-off initial contribution to the DC funds of those affected IASS members. Such contributions would favour those closer to retirement. The extent of the arrangements, including any contribution by Aer Lingus, will be linked to the strength of the commitment to stabilise employment costs.

"Although Aer Lingus reiterated that it does not have an obligation to make additional contributions to the pension scheme, the statement implies that it is willing to make a lump sum contribution to the new DC scheme in addition to regular contributions in order to resolve the pension issue," according to Davy analyst, Joshua Goldman this morning.