David Prosser: Pension planning over a barrel
Friday 02 July 2010
Outlook Congratulations to Diageo for coming up with a bright idea for plugging its pension deficit more rapidly than its scheme trustees could have expected. The notion of handing over company assets that are otherwise financially unproductive – maturing whisky in the drinks company's case – is a natural extension of the trend that has seen a string of other businesses transfer property to their pension plans.
The really clever element in the deal is the potential gain for Diageo should pension scheme returns improve unexpectedly strongly over the next 15 years. By offering this collateral today, it will reassure the Pension Regulator, who tends to get twitchy about long-term deficits, and avoid the full sting of the cash payments it might otherwise have had to make. At the end of the period, if the deficit has come down by more than the plan assumes, Diageo gets to buy back its whisky at a nominal sum. Cheers.
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