Diageo agrees pension funding plan using whisky as assets

Drinks company Diageo has agreed a 10-year funding plan with the trustees of its defined benefit (DB) pension scheme, which includes a pension funding partnership that will hold maturing whisky spirit as assets.

The structure is expected to generate an income to the scheme totaling £25 million each year over the 15 year term of the partnership. After that time the trustee will be able to sell its interests to the company for an amount expected to be no greater than the deficit at that time, up to a maximum of £430 million.

At the time of the actuarial valuation on 1 April 2009, the scheme deficit was £862 million, which triggered the development of the 10-year plan.

The agreement will also include the transfer of £197m into the scheme, which was agreed under the 2006 funding plan.

The organisation will further underwrite the reduction of the UK scheme deficit through an agreement to make conditional cash contributions into escrow totalling £338 million if an equivalent reduction in the deficit is not achieved over the 10-year term.

Following separate negotiations with its Irish scheme trustee, Diageo has provisionally agreed a deficit funding arrangement in respect of the Guinness Ireland group pension scheme which is subject to regulatory approval.

This deficit funding arrangement is anticipated to result in additional initial contributions to the Irish scheme of approximately €21 million (£17 million) annually over a period of 18 years.