September 2, 2013

Lufthansa wants to cut pension costs by dropping its current retirement plan in favour of a new scheme where payments to staff are linked to investment performance.

Peter Gerber, board member of the airline’s passenger division, said on Monday Lufthansa planned to scrap the current pension system by the end of the year but said any new system would have to be approved by unions.

Lufthansa, Europe’s biggest airline by sales, is following a growing trend in Europe to reduce pension costs by replacing so-called defined benefit pensions with defined contribution schemes more closely tied to investment returns. [EXPAND Read more]

The airline, which is also in the middle of a cost-cutting drive to try to boost profits, wants to switch to a defined-contribution pension, where employees and employer pay into the scheme but the final pension depends on actual market performance.

Lufthansa’s current plan, which covers its 60,000 staff in Germany, guarantees a minimum interest rate of 6 percent to 7 percent on contributions.

Gerber told journalists on a conference call that with current low interest rates and rising life expectancy, the airline’s costs have risen in the past few years.

Last year, for example, Lufthansa’s staff costs rose due partly to a 259 million euro ($341.52 million) payment it made to plug a pensions gap for German-based staff.

Gerber said if current interest rates were to continue next year, it would cost the airline roughly 470 million euros to plug the gap.

He said under the current system, retired cabin crew get an average amount of nearly 1,000 euros a month, while a pilot would get a bit more than 4,000 euros.

Cabin crew trade union UFO and pilots union Cockpit said they were against Lufthansa’s plan, saying it would mean lower pension benefits. They said they would ask experts to examine it. [/EXPAND]