'Silver sozzlers' raise their glasses to the pension plan you can drink

Published on Thursday 1 July 2010 18:08

THIRSTY senior citizens or silver sozzlers, as they are sometimes known, have been known to blow their pensions on drink.

• Diageo is handing millions of barrels of whisky to its retired workers in a bid to fill its pension fund black hole. Picture: Mike Wilkinson

But yesterday saw the birth of a quite different phenomenon, a pension fund being saved - rather than squandered on - innumerable bottles of whisky.

The drinks company Diageo yesterday announced that it is handing millions of barrels of maturing whisky to its retired workers as part of a scheme to close its pension fund deficit.

Newly distilled spirits from the company's famous distilleries such as Talisker, Lagavullin, Caol Ila and Oban are to be transferred to the Diageo Pension Scheme in an attempt to close a deficit that was measured at 862 million last year.

The move, believed to be the first of its kind, will see between two and 2.5 million barrels of whisky stored in warehouses across Scotland as part of the deal designed to use the company's assets to plug the hole in a final salary pension scheme which has 62,000 members, including 4,000 current Diageo employees.

The transfer of the whisky assets, which will be used as collateral to generate income, is at the heart of the ten-year funding plan for the pension scheme, which was closed to new entrants in 2005. The move will ensure that members of the pension scheme will not have to up their contributions in order to boost their pension pots during the tricky financial climate.

The whisky assets will be used to provide an annual income for the pension scheme, while at the end of the agreement the fund's trustees can also sell the whisky back to Diageo for up to 430m to cover any funding gap.

"This structure will generate an income to the UK scheme which is expected to total 25m each year over the term of the partnership," a company spokesman said.

Diageo said the whisky being transferred would be "new make spirit" Scotch, recently-distilled whisky, which is not yet three years old.

The "new make spirit" will be made up of a mix of malt and grain maturing whisky from the group's 27 Scottish distilleries.

Diageo has committed to buying the whisky from its pension fund every three years, transferring younger barrels back in to keep the value constant.

Diageo also today released 197m into the scheme to help fill the pension hole.

The company has agreed to underwrite the deficit-cutting plan by agreeing to make conditional cash contributions totalling 338m into an account that would be kept to make up any shortfall if the fund's investments do not perform as well as expected.

Yesterday's unusual deal, which will be submitted to the Pensions Regulator for review, follows the triennial valuation of the Diageo pension scheme last year, which revealed the 862m deficit and sparked the need for a ten-year funding plan.

Diageo pointed out that the valuation had been made at a time when the markets were suffering as a result of the financial crisis and added that the fund's position had since improved.

Some of the barrels will be enormous "butts" that hold 330 litres. But the majority are expected to be so-called Hog's Head barrels that contain 180 litres of spirit - the equivalent of around 250 bottles.

Although propping up pensions is an unusual use of Scotland's national drink, the deal is not the first time that a company has used assets to plug a gap in a pension scheme. In May this year Marks & Spencer and Sainsbury both announced they were committing property to their pension funds.

"Transferring assets to a pension fund is not in itself that unusual," said a Diageo spokesman. "What's novel about this is that we are using whisky."

Last night the Scotch Whisky Association refused to comment on the plan saying it was a matter for Diageo.