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Diageo to fill pension void with whisky

Multi-national premium-branded drinks business Diageo (LON:DGE) has a agreed 10-year funding plan with the Trustee of the UK Diageo Pension Scheme to help tackle its deficit. The Johnnie Walker parent company plans to hold maturing whisky spirit as assets in a pension funding partnership (PFP), which is expected to generate £25 million per year.

The PFP is expected to be in place for 15 years after which time the Trustee will be able to sell its PFP 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.

Under the 10-year funding deal, Diageo will make conditional cash contributions into escrow totalling £338 million to underwrite the plan should the measures fail to achieve the necessary reduction to the deficit.

At the time of the triennial (three-year) actuarial valuation on 1 April 2009, Diageo’s UK pension deficit was £862 million - triggering the requirement for a 10 year funding plan. The company highlighted that £197m, agreed under the 2006 funding plan has been transferred to the UK Scheme.

“Diageo will contribute at least £430 million to the PFP, £367 million of which will be paid to the UK Scheme which the Trustee has decided to invest in the PFP, with the balance paid directly into the PFP by Diageo companies. These capital contributions will be used to invest in maturing whisky spirit.”

The PFP's investments in the maturing whisky spirit will provide the Trustee with collateral against Diageo's current funding obligations to the UK Scheme, Diageo added.