Aer Lingus is proposing to use just €70 million of the proceeds of its proposed privatisation to shore up the company pension fund and intends to set up a new defined contribution scheme for future staff.

It had been reported the airline would need to use €170-€200 million to shore up the fund, but this figure was not used at meetings with staff representatives earlier this week. Aer Lingus would not comment yesterday saying it could not comment because of the forthcoming flotation.

At meetings with unions, the airline said existing staff and pensioners would be able to draw on the current Aer Lingus pension scheme, but the scheme would be closed to new entrants after a certain date. New staff would pay into a separate defined contribution scheme instead.

Defined-benefit schemes pensions are linked to final salaries, while pensions from defined contribution schemes are based on the performance of the underlying funds. The current defined-benefit scheme, which traditionally has been index-linked, is to be supported by a supplementary fund of €70 million if it runs into difficulties. A separate supplementary fund, based on higher contributions from staff and the company may also be set up to secure the fund.

During the meetings, unions again raised the issue of a pay increase for staff, but the company said this was best handled by some type of profit-sharing scheme, rather than an upfront pay increase. The company also said a profit-sharing scheme could help the Employee Share Ownership Trust (Esot) retain its current shareholding of 14.9 per cent in the flotation.

Meanwhile, in Britain there is growing concern that a pension guarantee for BT could trigger an investigation by the European Commission. This could have implications for Aer Lingus's proposed solution.

In 1984, a guarantee was given to BT by the British government which meant that three-quarters of BT's pension fund liabilities would be underwritten by the Government. Even though the guarantee was given so long ago, reports in Britain suggest that it could still be investigated for being State aid. A legal expert in Britain Simon Holmes, partner at SJ Berwin, said this week that BT's pension arrangement with the Government could give it an unfair advantage over its rivals.