Pension deficits and whiskey

Pension deficits continue to cause problems for some businesses in the UK who have to meet the growing cost of providing expensive defined benefit pension schemes.

Drinks company Diageo has come up with a novel way to tackle their own estimated £875 million pension shortfall.

Rather than pay more company profits into the pension scheme, they have established a pension funding partnership (PFP) that will produce whisky with a maturity date over 15 years.

The PFP will then sell it back to the company for an amount predicted to be no greater than the pension deficit at that time, up to a maximum of £430m.

This structure has the added benefit of generating an income for the pension scheme of £25m a year.

Of course pensioners in the Diageo scheme will get cash rather than booze when they retire.

The UK has a total pension deficit of £21.8bn from 6,653 schemes, according to the latest figures published by the Pension Protection Fund (PPF). This is compared to a surplus of £11.7bn only a month ago, which demonstrates how quickly a surplus can turn into a deficit.

It still remains much better than the record deficit of £149bn a year ago.

Other companies with big pension scheme deficits might consider following the lead of Diageo with innovative solutions to dealing with the problem.