Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Last Friday, the trustee of the Irish airlines (general employees) superannuation scheme, known as the IASS, applied to the Pensions Authority for a section 50 direction and submitted a funding proposal to address the deficit in the IASS.

The trustee requested that I commence with immediate effect sections 32B.(1) and 32B.(5) of the Air Navigation and Transport (Amendment) Act 1998, as inserted by section 34(1) of the State Airports (Shannon Group) Act 2014 to facilitate implementation of the funding proposals should the Pensions Authority approve them. These sections allow the trustees to amend the provisions of the scheme and to provide also for the cessation of the revaluation of preserved benefits under that scheme where the trustee amends it. Having considered the trustee's request and reflected on all of the issues relating to the IASS difficulties, I signed the commencement order last evening. Had I not signed the order, this would have posed an unquantifiable risk to the entire scheme and could have had profoundly serious implications for all members of the scheme.

I would like to set out for the House the background to these difficulties. First, let me make it clear that the administration of the IASS is a matter for the trustees of that scheme. Resolution of its funding difficulties is primarily a matter for the trustees, the companies participating in the scheme, the scheme members and the Pensions Authority. The process currently underway involves all of these stakeholders.

These difficulties have increased with the result that a significant funding deficit has arisen, up from €344 million in 2011 to €769 million in March 2013. I understand that this was due not only to the unsustainable structure of the scheme but also to the global downturn which saw the value of investments fall sharply allied with interest rates falling to unprecedented levels and thereby significantly increasing the scheme's liabilities. With the scale of this deficit, it was outlined in March 2013 that in the event of a wind up of the scheme, because priority is given to pensioners, the active and deferred members would receive only 5% of their benefit expectations based on pension legislation prior to the December 2013 amendment which permitted reductions to be made to pensions in payment. Against the background of threatened industrial action, my Department and the Department of Jobs, Enterprise and Innovation, together with ICTU and IBEC, established an expert panel to investigate how a final resolution could be reached. Their task included finding the fairest way to distribute the burden of resolving the current deficit in the scheme, while addressing a range of other impediments.

The expert panel recommended in its report that the IASS trustee engage with the employers on ways to alleviate as much of the impact of the trustee proposals as possible for the deferred members while also recognising the overall affordability to the employers of the proposals for active and deferred members. The panel outlined a set of principles that it recommended should form the basis of such engagement. As a result of that report, there was an uplift in the moneys to be provided by the employers outside of the IASS, a significant proportion of which is intended for the deferred members to make a contribution towards mitigating the benefit cuts proposed by the IASS trustee. This is an essential consequence of the process proposed by the expert panel. Specifically, almost €20 million in extra funding is being proposed by the employers for deferred members in addition to the €40 million already being made available for this group, bringing the full amount to €60 million. The total contribution proposed by the employers for all members now amounts to more than €260 million.

The trustee advised me on 12 November 2014 that having given consideration to the observations it received pursuant to the consultation process and all relevant factors, it had decided to make an application to the Pensions Borard for a section 50 direction and to submit a funding proposal based on the measures outlined to address the deficit in the IASS. This application is subject to Aer Lingus shareholder approval for the proposals and the commencement by ministerial order of the relevant provisions of the State Airports (Shannon Group) Act 2014. The trustee asked that I proceed with the immediate commencement of the provision in order to facilitate implementation of the funding proposal.

The trustee, who has the lead role in terms of responsibility for the pension scheme, believes that the measures proposed are in the overall best interests of the members of the IASS as a whole, are in compliance with the trustee's fiduciary duties and also in line with the trustee's obligations under the pensions Act and the requirements of the Pensions Authority.

The trustee also confirmed its compliance with section 34B(1) of the State Airports (Shannon Group) Act 2014. The three employers, Aer Lingus, DAA and SAA also wrote in support of the trustee's request that the commencement orders be made with immediate effect in order to facilitate implementation of the funding proposal.

On the basis of this, it is clear that the proposals to resolve the IASS difficulties are complicated, intricate and deeply challenging. It is also clear that the funding proposed by the employers is the maximum that can be achieved in the circumstances. It must be recognised that a figure more than €260 million is a significant contribution from the employers, particularly in the context of the ongoing viability of these companies as major employers. Any efforts to reduce the impact of the proposals on one group would adversely affect the other groups and would destabilise the entire initiative.

I agree with the expert panel's view and I believe that, in the circumstances, the proposed package of measures offers the best possible outcome for all concerned.