It was one of the more innovative ways to plug a hole in the pension fund. Back in 2010, drinks giant Diageo came up with a radical plan to fill an £862million shortfall in its retirement scheme with millions of barrels of maturing whisky.
Under the 15-year deal, which was extended to 2030, whisky stocks from distilleries across Scotland were transferred to the Diageo pension fund.
These included single malts from famous distilleries such as Talisker on the Isle of Skye and Islay-based Lagavulin.
As whisky matures, its value grows, so the scheme had a guaranteed source of income from selling some barrels – plus a valuable, tangible asset from the remaining stock.
Meanwhile, the owner of Guinness and Johnnie Walker whisky cut the amount of cash it needed to put into the scheme to repair the pension fund deficit.
The unusual approach seems to have paid off. The pension scheme is now in surplus – partly because higher interest rates have cut the current cost of future pension payment promises – and Diageo hasn’t needed to make contributions to the fund in the past two years.
In charge: Former Tesco boss Dave Lewis is the chief executive of Diageo
It means one less headache for new boss Dave Lewis, who is trying to revive the fortunes of the world’s largest spirits group after nearly 2,000 jobs were shed last year. Latest accounts show that the remaining whisky stock is worth almost £550million.
Diageo can exit the deal in four years’ time if there is no deficit in the pension fund.
If it is in the red, the company would have to pay up to £430million in cash to buy back the remaining barrels from the scheme, depending on the size of the pension shortfall.
Either way, Diageo insisted there would be no impact on the accounts as no off-balance-sheet asset was created under the original deal.
So, long-suffering shareholders hoping to raise a glass to some sort of windfall payment if the scheme is in credit will be sorely disappointed.
But equally, Diageo’s persistent pension problem will have been solved thanks to more than a few drops of the hard stuff.
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Whisky plugs drinks giant Diageo’s pension black hole