UK/IRELAND - Drinks giant Diageo has announced its UK pension fund will tackle a £862m (€929m) deficit by investing in maturing whisky.

The 10-year funding plan - which has been agreed with trustees of the UK Diageo Pension Scheme, but not yet submitted to the Pensions Regulator - should generate around £25m a year in returns from whisky for the defined benefit scheme, the company said.

Under current proposals, a pension funding partnership would be formed between the UK fund and its sponsor.

A total of £430m would be invested into maturing whisky through option arrangements, allowing the Guinness brewer to retain control over an estimated 2.5m barrels.

After 15 years, the scheme, which is closed to new members, would then sell its options for an amount expected to be "no greater than the remaining deficit" of £430m.

Further, the company will contribute a maximum of £338m in additional cash contributions should the deficit fail to close as quickly as outlined over the 10-year period.

Diageo recently injected £197m into the scheme under plans agreed in 2006, meaning it will pay more than £1bn to prop up its UK pension over the next 15 years.

Funding proposals for the Guinness Ireland Group Pension Scheme were also announced today, with the company set to pay €21m annually to close a deficit in excess of €300m. 

Plans to solve the funding shortfall are already with the Pensions Board, and the company hopes to proceed by the end of August.