Splash of whisky added to Diageo pension fund

1st Jul 2010 07:07

Guinness brewer and spirits distiller Diageo has reached agreement with its pension fund trustees on a 10-year funding arrangement for the UK pension scheme.It has been agreed that £197m which was agreed under the 2006 funding plan will be transferred to the UK scheme, which was £862m in deficit at the beginning of April 2009.A pension funding partnership will be formed (the PFP), which will hold maturing whisky spirit as assets, generating an income to the UK Scheme which is expected to total £25m each year over the term of the PFP. 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 £430m.The company will further underwrite the reduction of the UK scheme deficit through an agreement to make conditional cash contributions into escrow totalling £338m if an equivalent reduction in the deficit is not achieved over the 10 year term.The company expects that the annual payments to the UK Scheme of £25m together with payments which are anticipated under the agreement currently being negotiated in respect of the Guinness Ireland Group Pension Scheme will be broadly cash flow neutral against the £50m per annum which has been paid in respect of the UK Scheme since 2007. These arrangements will have no impact on the value of Diageo's net assets. Following separate negotiations with the Irish Scheme Trustee, Diageo has provisionally agreed a deficit funding arrangement in respect of the Guinness Ireland Group Pension Scheme (the Irish Scheme).