Diageo stiffening its pension fund with malt whisky

Drinks giant Diageo today moved to top up its pension fund by pouring gallons of the finest Scotch single malt whiskies into it.

Between two million and 2.5 million barrels of malt and grain whisky from distilleries including Talisker, Lagavulin, Caol Ila and Oban will be used to back the liabilities of the UK pension scheme.

The maturing whisky in the barrel begins at 63% proof. A typical barrel is capable of producing around 250 standard 70 cl bottles of 12-year-old whisky.

That means Diageo pensioners will have a share of 600 million bottles-plus. That is just over half the total exports of Scotch last year.

Similar schemes guaranteeing pension liabilities have been seen by Marks & Spencer and Whitbread, using properties, and by ITV, using its shares in transmission subsidiary SDN.

But Diageo's plan, using its most liquid assets, is by far the most radical yet.

It said it had set up a pension-funding partnership which will hold stocks of maturing whisky spirit for 15 years. It is part of a plan agreed with pension fund trustees to close a £862 million deficit in the pension scheme.

The whisky, which ranges in age from nought to three years old, will generate £25 million of cash a year as Diageo replenishes mature stock used for sales with new spirit. at the end of the 15 years the whisky will be sold back to the company at what it hopes is by then a reduced-sized pension black hole or a maximum of
£430 million, whichever is the lower.

Diageo is making extra cash payments into the fund and into an escrow account totalling
£535 million.

The new funding scheme will now be put to the pensions regulator for approval.

Whisky may be one of Diageo's most valuable assets — it could not have used kegs of Guinness to keep the pension fund topped up — but it does have a hidden liability.

While its value rises as it matures, its volume shrinks. Around 2% of the contents of a barrel evaporate each year, which distillers have long called the angels' share.