Whisky to Plug Pension Deficit

(July 2, 2010) — Drinks giant Diageo PLC, London, has revealed a plan to plug its £862 million UK pension fund deficit with millions of pounds worth of maturing Scotch whisky. Under an agreement with its UK pension trustee, Diageo said it will transfer its maturing whisky stock, which has a book value of £500 million, into a new pension funding partnership (PFP).

“A pension funding partnership will be formed, which will hold maturing whiskey spirit as assets,” Diageo, which also makes Guinness stout and Smirnoff vodka, said in a statement.

The sale price is expected to cover the remaining funding gap, with the whisky barrels generating an income for the fund of £25 million a year over 15 years, at which point the barrels can be sold back to Diageo. The barrels can be sold back to Diageo for as much as £430 million, depending on the size of the remaining deficit.

As the whisky reaches maturity, Diageo will pay a fee to the £4.6 billion fund to replace the mature spirits with a younger batch.

Diageo, whose products include Guinness, Johnnie Walker and Baileys, is not alone in its effort to buoy growing pension deficits in the UK, which increase as people live longer, with so-called contingent assets while avoiding a hit on company balance sheets. Sainsbury, Marks & Spencer and Whitbread have used property assets to fill holes in their pension schemes. Additionally, the investment firm Man Group moved some hedge fund assets into a trust as a security for its British pension plan in March.