Dairy Crest secures pension fund with £60m of cheese

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PROTECTING pensions against government tax raids is one thing but a major dairy firm may need to consider high-­security “mouse-proofing” measures after offering up millions of pounds worth of mature ­Cheddar cheese to back its pension fund scheme.

Dairy Crest, one of the UK’s largest dairy processors, is taking the innovative step of using £60 million worth of its best-known Cheddar Cathedral City – nearly half of its valuable cheese stock – as security for its pension fund.

In the event of the fund going bust it would sell off the cheese, which is equivalent to 20,000 pallets or 20 million kilos.

Diageo, the drinks giant, struck a similar deal with its pension scheme in 2010 when it agreed to move millions of barrels of maturing whisky from 27 distilleries in Scotland, such as Talisker, Lagavulin and Oban, to the fund in an effort to plug its £862m pensions deficit.

The new trend for “commodity investments” has included planes offered by British Airways as security to its defined benefit pension fund, television company ITV offering intellectual property rights of its ­digital arm, and Tesco using its superstore properties as a deficit- reduction tool.

However, Dairy Crest is ­believed to be the first firm to underwrite its pension pot with cheese.

The firm, based in Esher in Surrey, which employs around 6,000 people, has been battling to fill the hole in its final ­salary pension fund, which covers around 3,500 workers. It closed to new members in 2006 and shut to existing members in 2010.

Dubbed the “Bank of Dairy Crest”, the group’s cheese stocks are worth about £150m.

The firm pays £20m a year into the scheme, but said the new deal will further boost its funding and help ensure it is protected in case Dairy Crest went bust.

Last year, the company closed two of its plants – in Liverpool and Cambridgeshire – as it admitted it was battling in an “extremely challenging” milk market.

It will also pump in an extra £40m into the scheme to help plug an £84m pension deficit, using proceeds from last August’s £341m sale of its French spreads business St Hubert.

The company had been considering using the proceeds from the St Hubert deal to make acquisitions, but said in February that any large deals were unlikely.

Danny Cox, head of financial advice and planning at Hargreaves Lansdown, said Dairy Crest’s move was one a small number of recent “commodity investments” aimed at reducing deficits.

“Dairy Crest are trying to be creative in the way they are transferring value to reduce their deficit. It’s relatively common to hold property, even your headquarters, for this purpose. At the moment many final pension schemes are running deficits. Companies can’t afford to put money in so they are looking at deficit reduction planning.”

Mr Cox added: “Dairy Crest are experts in the cheese business so we would hope they would have a very good sense of what the value of this asset is. It is a good move – providing the price of cheese doesn’t crash.”