The £3.2bn (e5.2bn) Diageo pension scheme was born on April 1, 1999, following the merger of the GUD pension trust and the GrandMet group fund after the corporate fusion of GrandMet and Guinness in 1997 to form Diageo – the world’s largest premium drinks firm.
Prior to the merger, the administration of the GrandMet pension scheme was outsourced. Subsequently, the GUD pensions administration team made a successful bid to administer the Diageo scheme.
April 1999 marked the start of a dramatic change within the fund, with the introduction of several new pension arrangements for members (73,000 approximately) – including AVCs (additional voluntary contributions) for all.
The fund’s investment strategy also underwent a major review, as did member communication structures and the fund’s commitment to pensioner service. Significant investment was made in people and administration systems.
Under the transition to the new scheme, calculation routines for the eight member categories within the fund were simultaneously re-specified, while all member letters and documentation were completely revised.
The member categories consist of three closed non-contributory sections, two main (open) contributory sections and three executive sections (two contributory, one non-contributory).
A major communications endeavour was undertaken to make the change successful. The communications took the form of a pensions roadshow, consisting of over 250 meetings and attended by over 5,500 members. The campaign saw virtually 100% of scheme members signed up for the new arrangements.
The fund moved into new premises in Edinburgh in December 1999 and simultaneously introduced document-imaging technology to its administration set-up.
In April 2000, the fund reappraised is investment strategy and, as a result, cut back on its exposure to UK stock market investment. Greater diversification of the assets was sought through allocations to venture capital and small companies exposure. The aggressive strategy underlined Diageo’s commitment to offering its employees defined benefit (DB) pension provision.
The fund currently invests 88.5% of its portfolio in equities, of which multinationals represent 29.1%, UK equities 32.8%, European equities 6.9%, US 6.5% and Pacific Basin/Japan 7.9%.
Venture capital/small companies allocation stands at 5.3%, while property represents 10.9%, with 0.6% in other instruments. Twelve specialist equity mandates were introduced as part of the new investment strategy. Also, in April 2000, the scheme’s AVC provision for members was put into place.
December 2000 saw the introduction of a £100m special RPI catch-up pensions increase, whose overall objective was to ensure that all pensioners were in receipt of a pension that retained its original purchasing power – as determined by the progression in RPI since leaving or retiring from the firm. The fund’s policy going forward is to at least match RPI and the commitment represents best industry practice among both public and private sector funds.
The Diageo pension scheme trustee board includes two pensioner members in a bid to ensure that pensioners are treated favourably. The fund’s pensions department also has a dynamic Pensioner services Team (PST), which is responsible for all communication with pensioners and provides a help desk and face-to-face communication for members and pensioners. The PST’s primary function is to support and co-ordinate the activities of some 70 Diageo retirement associations around the UK, meeting the needs of some 35,000 members.
At Christmas, pensioners are invited to a special free social function with guest speakers from the company, which typically include a main board director, a scheme trustee and a member of the pensions department. The event helps the firm communicate the latest developments on pensions and company issues as well as receiving feedback on how services could be improved. The fund also sends a gift hamper to all pensioners containing company products.
In terms of member communication, Diageo provides annual benefit statements that are designed to be eye-catching and provide tailored information. Statements are issued to coincide with the company’s annual pay review cycle. The fund also publishes a quarterly pensioner magazine (DRAM), giving news about the fund, the company and also former colleagues and leisure offers.
For retiring members one-day roadshows are also run throughout the year and include a range of speakers from the PSY, shares department, the benefits agency and an independent financial advisor. A dedicated help-line also ensures that pensioners can find out how their pension has been calculated.
The fund is still formulating policy for its internationally mobile employees, but says the starting philosophy is to ensure its members are not disadvantaged in any way.

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