“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.
As part of the deal, Diageo agreed to pay the pension partnership £25 million a year as it sells the recently distilled whiskey once it matures after three years and replaces it with new stock. The agreement would expire after 15 years, at which point Diageo would buy back the whiskey, which comes from distilleries such Oban on the west coast of Scotland.
Companies are searching for new ways to reduce their pension deficits, which increase as people live longer. The British supermarket chain J Sainsbury said earlier this year it would transfer property into a pension vehicle, while Whitbread agreed to hand over a share in its portfolio of restaurants and hotels. The investment firm Man Group moved some hedge fund assets into a trust as a security for its British pension plan in March.
“We’re seeing a huge growth in the use of non-cash funding,” Marc Hommel, leader of the pensions practice at PricewaterhouseCoopers in London, said. “There are big pension deficits and sponsors are cash-strapped. These mechanisms provide security for the pension plans in exchange for less cash.”
Diageo’s pension deficit was £862 million at the beginning of April. The company also said it transferred £197 million to the pension plan. Diageo expects the new pension arrangements to be “broadly cash flow neutral” and not to have any impact on the value of its net assets, it said.