The Diageo Pension Scheme
While Diageo’s stock has been selected as one of AJ Bell’s best buys for 2021, we explore their defined benefit scheme.
The Diageo pension is one of the healthiest defined benefit schemes in the UK. Its 2019 annual report showed a funding surplus of £254m, and overall funding position of 104%.
We’ve helped several members of the Diageo scheme over the years. Having studied both the trustee handbook and scheme rules, we’ve summarised the important elements for you.
Scheme structure & sections
The Diageo scheme has been closed to new members since 22nd September 2005. Having started as a true ‘final salary’ scheme, the pension moved to ‘career average’ accrual in April of 2018.
As a final salary scheme, benefits accrued on a 1/60th basis, where each year of service achieved 1/60th of final salary as a pension income. Since moving to CARE (Career Average Revaluated Earnings) in 2018, scheme accrual changed to 1/70th levied on average earnings rather than a member’s final pensionable salary.
The Diageo Pension Scheme includes the following scheme sections:
- United Glass
- GrandMet
- GUD
- AGS
- DCL
- Bells
- Executive
- Senior Executive Tier 1
Additionally, upon joining the scheme, employees had the option to become Gold or Silver members. This had a direct effect on the cost of contributions and the size of retirement income benefits.
Inflation-linked income
As with most schemes, Diageo’s pension income links to inflation both pre and post retirement.
Prior to April 2012, scheme excess income benefits linked to the more favourable Retail Prices Index (RPI). This changed to the Consumer Prices Index (CPI), with an annual cap of 5%.
Any Guaranteed Minimum Pension (GMP) benefits are subject to statutory rules.
The scheme income increases are awarded in January of each year.
Scheme retirement age
The ‘normal’ retirement age of the scheme is 65 years. Some members may be entitled to a protected retirement age, but for most – income will be payable in full from their 65th birthday.
The scheme does allow retirement early, or late, and can provide calculation factors upon request. Retiring earlier to the normal scheme retirement age will mean a reduction over income. Late retirement may entitle you to an enhancement factor, up to the age of 75.
Anyone considering early or late retirement should contact the scheme to request a personalised retirement quotation.
Pension death benefits
While in employment, Diageo members are eligible for both scheme income death benefits as well as a ‘death in service’ lump sum equal to 4 x salary.
The spousal death benefit for the Diageo scheme is 50%. Spouses and long-term qualifying dependent partners are eligible. Childrens’ pensions are available additionally, subject to the scheme rules.
A long-term partner may qualify for the full 50% spousal income death benefit, subject to the trustees discretion. Generally, qualification is based upon:
- Partner demonstrating they share living expenses with the member, receive financial support and whose standard of living would be affected by the death of the member
- A dependence due to disability
- A financial dependence where a former spouse is in receipt of maintenance payments from the member
Qualifying children must be aged 18 or younger, or under 22 years if in full time education. Any children with a long-term disability due to mental or physical incapacity may qualify for life-long pension income death benefits.
Diageo retirement options
At retirement, Diageo members can take their pension income in full, or ‘commute’ some income for a Pension Commencement Lump Sum. Those interested in taking a lump sum upon retirement should apply for a quotation as they approach retirement age.
Scheme commutation factors are subject to change, so it’s best to consider your options in the final two years prior to taking Diageo pension benefits.
Transferring Diageo pension wealth
Any member with more than 3 months, but less than 2 years’ pensionable service can apply for a refund of contributions. Those with longer than 2 years’ benefits can apply for a Cash Equivalent Transfer Value (CETV) and consider transferring their Diageo pension wealth to a private pension.
If you have a Diageo scheme pension and want to understand your options, get in touch with us to help talk you through your personal benefits and planning opportunities.
Try our online CETV calculator to estimate what your pension could be worth. To apply for a guaranteed CETV, contact Capita, the Diageo scheme administrators, by email on [email protected] or visit the member website, www.mydiageopension.com
