Aer Lingus faces a significant pensions deficit if existing practices are continued, according to an actuarial review of the current pension scheme.
In a confidential report benefits consultants Mercer say a major deficit of over €336 million looms for the staff pension fund linked to Aer Lingus and other airport companies. The conclusion is based on current contribution levels and the practice of index-linking pension payments.
While the scheme is currently in surplus, this is only because the rules of the defined benefit scheme make no mandatory provision for index-linking. However, allowance for inflation has been made for most of the 50-year life of the scheme.
The airline said: "The scheme is in surplus on the basis of the rules of the scheme. A deficit only arises on the assumption that pension increases are guaranteed and will be paid indefinitely. This is not what the rules of the scheme provide for."
However, Mercer maintains that any privatised Aer Lingus would certainly have to assume such index-linking in its accounts under recently introduced international accounting rules.
However, the company said it was in negotiations for a new standalone pension scheme just for Aer Lingus staff. SIPTU said it had decided to obtain legal advice on the pensions issue
SIPTU national secretary Michael Halpenny last night said the prospect of a pension deficit was "a matter that the Government must address before it proceeds any further with proposals for privatising our national airline".
"When it was first mooted that Aer Lingus might be privatised ... we were given commitments that this would have no impact on pensions," he said.
The Department of Transport said the pension issue was being dealt with by the company. "There has been an immediate move to deal with the matter comprehensively, which is welcome and re-assuring," said a spokesman for the Department. He declined to comment any further.
The scheme, the Irish Airlines (General Employees) Superannuation Scheme, is one of the largest in the State with 5,627 members. It serves workers from Aer Lingus, the Dublin Airport Authority and some staff from maintenance firm SR Technics (previously called Team Aer Lingus).
At present the scheme boasts a surplus of almost €140 million. However, if allowance is made for inflation-linked increases into the future, a total deficit of €336 million arises. The airline will be anxious to resolve any outstanding issues such as the pension before it embarks on any sale plan.
The defined benefit scheme is funded at arms length by the companies and their employees, both of whom contribute 6.375 per cent of salary.
In a letter recently sent to the fund's trustees, Mercers, the benefit consultants, made it clear the current surplus would be reversed in the context of members continuing to get inflationary increases.
"If the assumptions underlying the valuation projections are borne out in practice, then the scheme will not be able to continue awarding pension increases linked to inflation," states the letter.
The full actuarial report, which is not made available by Aer Lingus but has been seen by The Irish Times, also supports this argument. "Existing assets will not be sufficient to provide for continuation of inflation-linked pension increase for accrued benefits," it states.
If a deficiency arises in a pension fund the trustees have to take measures to remedy the situation. This usually involves the company and employees increasing contributions, members settling for reduced benefits or both.
Unions at the airport regard inflationary increases in pensions as the minimum standard they are prepared to accept. Pensioners of the various airport companies have protested in recent months about the potential erosion of their benefits.
