THE trustees of the Irish Airlines Superannuation Scheme (IASS) – which serves thousands of Aer Lingus and Dublin Airport Authority workers – have warned that the pension vehicle would need to invest in risky sovereign debt issued by countries including Cyprus, Portugal and Greece if it's to ensure scheme members suffer no reduction in future benefits.
It's the only way experts reckon the scheme – which has a deficit approaching €800m – could achieve a yield of 5.7pc that would prevent such a scenario occurring.
But in a document seen by the Irish Independent, the trustees warned that a 5pc yield is more achievable.
Investing solely in the sovereign bonds from Ireland, France, Italy and Spain would only result in a yield of about 4.6pc. The trustees indicated that 48pc of the IASS's €1.4bn or so in assets has already been invested in sovereign bonds.
The IASS has a deficit of around €800m and assets of around €1.4bn. Unless a solution to address the shortfall can be secured, workers who haven't yet retired face cuts in their future benefits of at least 12pc.
But under proposals from the trustees, workers would have to continue in employment until they're 67 or 68.
The trustees have said that the scheme needs to achieve an "additional yield over a sufficiently long time to close, as far as possible, the gap between the value of the assets and value of the liabilities".
In attempting to achieve a yield of 5pc on the IASS, the trustees have said that, aside from investing in the Irish, French, Italian and Spanish sovereign bonds, the scheme would also need to invest about €300m in credit default swaps and another €115m in so-called bond-repo, or repurchase agreement, where the holder of a security agrees to sell it and buy it back at a later date.
Credit default swaps are instruments where the seller agrees to compensate the buyer in the event of a loan or credit default.
Aer Lingus had agreed to stump up €140m to help solve the IASS pension crisis. The DAA agreed to contribute €60m. Under the deal, staff on the scheme would be moved to a defined contribution scheme and both companies would no longer be liable for any further deficits that might occur.