Funds Hub

Money managers under the microscope

A toast to Diageo’s pension deficit

July 1, 2010

Drinking has acquired a new meaning today:  it may not be good for you, but it will help pay pensions. 

That’s the spirit! Quite literally.

Next time your GP/health conscious spouse/friend tells you to cut on alcohol, you can tell them Diageo has sealed a deal  with its UK pension fund trustees, which includes transferring ownership  for 15 years of up to 2.5 million barrels of Scotch whisky to make good  its 862 million pound deficit.

Diageo is not the only large employer having to make contingent assets available to pacify  pension trustees (and the Regulator),  but it is certainly one that stands up in the crowd in its attempt– although a spokesman reassures me that the whisky pledge is no different from using property.

Under the deal; the UK pension scheme will own barrels of malt whisky for 15 years and will sell back its rights to Diageo for no more than 430 million pounds. It will meanwhile get about 25 million pounds a year for the duration of the partnership.

If  Diageo fails to keep its side of the bargain, the trustees have a right to sell the whisky to another buyer but Diageo would have the right of first refusal. Distilleries  throughout Scotland will contribute to this pledge; just so you know in case you are heading for a distillery tour in your summer vacations.

The Diageo UK pension scheme trustees  have done well today and should be celebrating. No prize for guessing what they will be drinking…

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