UK - Drinks giant Diageo and brewing firm Whitbread have unveiled massive increases in their FRS17 pension scheme deficits in the wake of plunging stock markets.
The deficit in Diageo’s £2.2bn final salary pension scheme has soared by £614m in the last four months – from £336m at the end of June to £950m by the end of October.
Whitbread, meanwhile, has seen the deficit on its £1.1bn pension fund triple in five months from £84m at the end of March to £250m at its triennial review in August.
Diageo fully retains its commitment to equities and has been badly hit by falls in markets. Its asset allocation comprises 85% equities, 10% property and 5% venture capital.
UK pensions director Graeme Robertson feels a shift is unlikely.He said: “The trustees and the company are constantly monitoring the situation – they are not ignoring it in any way whatsoever.”
But he added: “I don’t think it will change right away, because all we would be doing is selling assets at a loss, when they are liable to come back at some stage.”
The company is still on a contributions holiday and will not make a decision on whether to start contributing again until after an actuarial evaluation next April.
Whitbread’s allocation is 77% equities with the balance in bonds and cash. And, like Diageo, it is not planning to shift.
Finance director David Richardson said: “The belief of the trustees is that the long-term return on equities will be higher than the long-term return on bonds, and the company agrees with that position.”
He added that the scheme did not have any immediate plans to address the deficit, but that if it persisted then funding levels would have to increase.
He also revealed that Whitbread had decided against early adoption of FRS17 as previously intended.
He emphasised: “The important thing is that we assure people who are currently or will be pensioners that the pension fund will be in a position to pay their pensions as they become due.”
The scheme – which has 7500 members, 13,000 pensioners and 27,000 deferreds – closed to new members in September 2001.
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