In a world of perpetual corporate realignments and restructurings, pension funds become very much involved in the fate of the sponsor to which they an umbilical type relationship. And strange things can happen in such transactions. Take the case of the merger of GUD pensions trust and the GrandMet group fund in the UK after the corporate mating of GrandMet and Guinness in 1997. The result was the birth in 1999 of the Diageo pension scheme, a robust offspring weighing in with assets of £3.2bn (e5.2bn).
The GrandMet scheme’s administration had been outsourced, the pensions administration team at the GUD pension trust successfully bid for administering all of Diageo. It was faced with an immediate challenge, of doing the calculation routines for the eight different categories of members were given a new specifications.
But this was not the only changes afoot at that time, with several new pensions arrangements being put in hand, including allowing members top up their benefits in the scheme though additional voluntary contributions, that were extended to cover all of the schemes 73,000 members. In addition, a new investment strategy was launched, member communication was prioritised and the pensions effort was generally enhanced with more resources including personnel.
Then to drive these changes home, a ‘pensions roadshow’ was launched – overall approach was to hold over 250 meetings, which attracted well over 5,000 members. At the end of the campaign, Diageo says that there was virtually a 100% sign-up for the new plan. And then in April 2000, the much discussed AVC plan for members came into effect.
At the end of last year, a £100m special retail price uplift for pensions in payment was made in order to keep pensions in line with price movements. This the fund sees as part of its commitment to increase pensions at least in line inflation in line with the best practice in pension funds.
But the communication is not just with the active members, as a special pensioner services team deals with retired members, through a help-desk and working with the 70 Diageo retirement associations in the UK, with some 35,000 members in all. The fund also undertakes publishing a quarterly magazine for pensioners, updating them not just about the fund, but also about old colleagues and soon.
Steve Mingle, who runs the fund, has been vociferous in his defence of the defined benefit approach on the firm grounds that it provides the best security for the scheme’s members. Though he acknowledges that the fund says this from a position of strength, since it is still very well funded.
To be sure of maintaining its position, the fund reappraised its investment strategy in 2000 and cut back on its UK equities portfolio to increase the proportion of venture capital and small companies exposure. The total equities content of the portfolio is around 89%, which is very high even by UK standards, with real estate making up nearly 11% and other instruments just under 1%.
The fund prides itself on putting its members, current and retired at the centre of its bull’s eye. As the fund sums it up: “We try to ensure that the pensions benefits are a very important part of the overall remuneration package for the employees involved.” Full report page 45

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