At Allied Domecq (AD), globally the second largest spirits and wine company, headquartered in Bristol, the worldwide network of pension funds and international benefits arrangements comes in all shapes and sizes.
“Basically, the principle according to our corporate pensions policy is that it should be a good local scheme,” says Brian Smith, pensions and international benefits executive at AD, who adds that that means that the group has a varied range of plans among its 10,000 or more employees worldwide scattered in 40 different countries. “The biggest funds are in the UK, the US and Canada. We also have a large defined contribution scheme (DC) in Spain and a very mature pension plan in the Netherlands.”
Elsewhere, there are standalone arrangements in some countries, such as Brazil and lots of small insured schemes. “It really depends on the size of our presence. There are only a few offices where there are sizeable numbers. In some cases there are fewer than 10 AD representatives,” says Smith.
He isn’t involved in either the North American or UK schemes, which basically run themselves at a local level, but monitors the rest of the world by questionnaire each year to collate information on the arrangements in different countries and acts as internal consultant on all levels, as well as preparing authorisation for any new schemes.
“Ultimately, new arrangements are authorised by the finance and HR directors here in Bristol, but it’s really horses for courses the extent of my involvement,” he comments. Smith says that the more he gets involved the better, because AD has global relationships with many insurance companies and it is more cost effective, but he does nonetheless value the part local advisers play. “They can help put us on the straight and narrow with regard to local regulation and practice, if something isn’t right.”
The only thing that could be said to contravene AD’s local scheme preference principle is the move to DC structures. “This is a trend that is affecting most pensions markets and it would probably be very difficult to get the go ahead for a defined benefit (DB) scheme nowadays anyway,” says Smith. He points out that the move is not just driven by financial certainty but more by culture. “The culture in the last five years has dramatically changed towards one of performance and empowerment and DC principles fit in with this,” he adds, pointing out that there is now more mobility in the company and industry, especially at executive level. “You now have people whizzing around the company. Gone are the days when people hung around for donkeys’ years.”
Through its international network of pensions and insurance schemes, Smith’s department takes care of a full range of benefits, including life, disability and medical insurance.
“We are sometimes questioned as to why we take care of medical insurance and benefits, but basically, we have a good overview of how it works, and also, in many markets, insured benefits of this nature come together with pensions in a bundled package,” Smith explains. Though AD has a dedicated insurance department, this tends
to concentrate on general insurance matters.
Smith’s department is also responsible for the company’s insurance pooling arrangements. “We started life with three multinational pools, but a review of operations some years back led us to redefining this into one main pool, and most of the life and disability alongside some of the medical insurance arrangements have been moved into this pool,” says Smith, pointing out that AD is
talking to one or two other insurers about medical insurance, since they decided they needed to take some more on board. This has led to the creation of a new second pool so there are two pools at the moment.
“The aim really is to have one or two preferred major providers. Obviously there will be exceptions, depending on the local market, but this is the objective.”
One area not covered by the pooling arrangements, however, are pensions. “We don’t pool pensions; if we need to get a pension plan insured in a particular country, we will talk to a small panel of international insurers including those with whom we have pools, plus some inportant local players, but pensions are not part of the pooling set up,” Smith stresses.
The idea of moving to a captive or reinsurance structure has been on the cards from the offset. “Basically, it means that AD should save money, since the reserves will earn interest for us rather than go to insurance companies as profit,” says Smith. AD is able to take some of the risk, since more money will be available, because it is spred over a large number of employees. “The captive in general will benefit, as it will have more cash flowing through it.”
But other areas may suffer. “We’d probably have to have stop loss and
catastrophe cover, but we are still only in the early stages of discussion, so these areas need to be discussed and sorted,” Smith adds.
AD does have an active international pension fund, but it’s small and designed purely for international assignees, whose moving around within the company doesn’t allow them to take part in a local or ‘home’ scheme. It is based in Guernsey and currently has some 40 or so active members.
“This fund was initially a DB scheme, which mirrored AD’s old UK DB scheme, but we switched to DC because cross border movement doesn’t always mean someone going from the UK to another country. The movements became more diverse, regular and complex, so going DC was easier, in that it allowed contribution rates to be individualised regardless of location,” says Smith.
Running the scheme as a DC structure is also much smoother, as sorting out “a myriad” of DB formulae can become a nightmare, Smith suggests. Exact integration with social security pensions was also removed, as it eliminated unnecessary and embarrassing delays in paying money out.
Smith also emphasises that the plan is the last resort, as local or home schemes take precedence. “It is not the first choice. A home or local scheme are the main options. The Guernsey scheme is bit of a dustbin really.” Anyone tied into the international scheme can join a local or home scheme if they become more permanently located. The Guernsey scheme is then assigned to them as a policy, which they can convert into a privately based Guernsey scheme or cash in once they turn 50. “This is a stipulation in Guernsey legislation we have no control over. Basically, you’re stuck until age 50,” Smith explains.
As far as coordinating investments is concerned, Smith concedes that this is something that he’d like to give more consideration to, but is aware of the complexities of such a move. “The bigger schemes, such as the US and UK, do their own thing, anyway,” he says, adding that the main benefit would be an increase in returns for the smaller pensions currently invested in traditional insurance contracts. “Many of the contracts are old now and quite small, so they don’t allow for wonderful returns.”
But Smith isn’t convinced that a pan-European pension scheme would work. “The administration in different languages for starters would be a nightmare,” he says, though he isn’t adverse to the idea of tax and social security harmonisation across the EU. “That would be very nice and would certainly make a difference, but whether it will ever happen is quite another matter.”
Smith also feels that the concept of a pan-European pension scheme is really only useful for companies that have a lot of cross border movement around Europe and at a level where all the members would understand English, but AD doesn’t have enough to warrant a move in that direction.
Whilst Smith believes that AD has a “good handle” on its international arrangements, one area that he would now like to concentrate on, is governance. “We need to look at how our arrangements are managed locally and by whom, just to establish that the right decisions are being taken and with the correct authority, and this may require some involvement from our internal auditors.” He says that the bigger plans undertake these kinds of review annually, but AD needs to look harder at the smaller plans.
“In general, I’d like to be a little more proactive, making sure I’m up on the latest regulations but also to review our corporate policies to ensure we
are providing the service which both HQ and our local companies require,” he says.

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