Diageo win the prize. The giant drinks firm, famous for its Guinness brand have come up with an ingenious way to top-up the deficit in its pension scheme. They’ve given the pension fund 2 million barrels of maturing whiskey from its Scottish distilleries.
At least in the event of a pensions default, Diageo pensioners will be able to drown their sorrows in quality single malts. But the idea is part of a current trend for companies to tackle the pension scheme deficit issue imaginatively.
A spokesperson for Diageo said that they would be transferring the ownership of the whiskey, worth £430 million to a pension funding partnership. This would give pensioners a guarantee that they would not walk away empty-handed should the company default. Diageo will pay the partnership £25 million a year as it sells the recently distilled whiskey and replace it with new stock.
Other companies taking this route include Whitbread, who have handed over a share of its portfolio of restaurants and hotels and J Sainsbury, who have transferred property in the same manner.
This is an excellent approach to dealing with the problem without having to hand over large amounts of cash and if more firms join in, it could play a major part in helping to stabilise the company pension scheme market and reduce the numbers that are closing to employees.
The only concern might be that governments may try to follow suit. Post the bank crisis, I think we own enough of their assets as it is……
European Paper shows no new thinking
The EU Green Paper on pensions has finally appeared and is set to stimulate a major debate within the pensions industry. While the aims set out are generally agreed, there is no sign of radical thinking in terms of possible solutions that might stimulate a debate. In fact some of the assumptions are a bit lazy, including the paper’s focus on a single approach across the whole European Union. This could be very problematic as pension systems and regulations are dramatically different between member states.
The paper sets out to address the long-term issues of providing safe, secure pensions for EU citizens, including those who work in a number of the countries over the course of their working life. However, it is in danger of confusing the pensions industry with the life assurance industry based on its emphasis on Solvency II as a starting point for a solvency regime for pension funds. The paper looks for a pension’s equivalent for Solvency II without asking is there a need for such a regime in the first place.
The other issue that leaps out is that the Paper takes the need to increase the retirement age as a given. This is happening in many countries, but the Green Paper was an opportunity, which has now been lost, for a debate about the appropriateness of this solution. As some commentators have already pointed out, increases in the retirement age are ineffective if they don’t coincide with increases in the number of jobs available. Otherwise, it will just result in more people being dependant upon the state at the start of their working lives rather than at the end. Hopefully the debate over the next few months will be a bit less predictable than the Green Paper has been.