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IPE special report May 2018

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Aer Lingus urged to increase payment to new DC scheme in IASS dispute

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The sponsors of the €1.4bn Irish Airlines Superannuation Scheme (IASS), one of Ireland’s largest pension funds, have been granted a final opportunity to resolve the “protracted and divisive dispute” surrounding its deficit and should put aside more than €200m to address the needs of active members, according to a report.

The report by a four-strong expert panel based its recommendations on a prior ruling by the Labour Court that urged Aer Lingus and the Dublin Airport Authority (DAA) to go ahead with the launch and fund a new defined benefit (DC) scheme as a way of counteracting the benefit reductions suffered by active members.

Convened in March at the behest of the Department of Transport, Tourism and Sport, the Department of Jobs, Enterprise and Innovation, business umbrella group Ibec and its union counterpart ICTU, the expert panel said the Irish carrier should put aside €146.7m and the DAA €57.3m to fund the new DC scheme for active members – an increase of nearly €46m over prior recommendations.

In a statement to the Irish Stock Exchange, Aer Lingus acknowledged the panel’s nearly €147m payment and the “further, non-qualified amount” recommended as redress for benefit cuts suffered by deferred members.

“The company will review the report and the recommendations made by the Expert Panel and will issue a further announcement in due course,” the statement said.

The DAA made a similar statement. 

According to a draft funding proposal drawn up by the trustee of the IASS, the fund reported a €715m deficit at the end of 2013, but would see the shortfall decline to €197m if it cut benefits in line with the revised priority order – imposing cuts of 10% on all pensions in payment over €12,000 per annum and 20% cuts on all pensions above €60,000, as well as doing away with indexation and cutting active and deferred accrued benefits by 20%.

The proposals would allow for a 25-year recovery period for the scheme, which has shifted its holdings towards a liability-matching portfolio consisting of French, Italian and Spanish bonds, according to a draft funding proposal from February published by the transport department.

The portfolio would target a 4.5% annual return, achieving a surplus of €28m by 2039, when the IASS is estimated to be €727m.

In its conclusion, the panel said: “The parties have agreed this is the final opportunity to resolve this dispute, and the panel is satisfied it has fully maximised the potential for additional investment to achieve a solution.

“Finally, the panel would ask all parties to recognise there is an urgency to bringing the entire process to finality, particularly in light of the statutory obligations of the IASS trustee.”

Under the statutory obligation of the trustee, the “immediate” wind-up of the scheme would be required, the report said.

In a joint statement, transport minister Leo Varadkar and enterprise minister Richard Bruton said the report recommended the “last best chance to resolve this long-standing problem”.

They added: “Now that the panel’s work is complete, we urge all parties to the scheme to give the report very careful consideration, use its recommendations as the basis for timely constructive engagement and achieve a resolution in the best interests of all parties.”

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