Diageo DB deadlock set to end after union split

The company previously proposed closing its £6bn final salary scheme to future accrual, moving the approximately 1,800 active members to its cash balance scheme. This was rejected by unions Unite and GMB.

This was followed by a new proposal, keeping the Diageo Pension Scheme open until March 31 2018 as a final salary scheme, before being modified from April 1 2018 to provide career average revalued earnings accrual, with a 1/70th accrual rate, 8 per cent member contributions and a pension age of 60.

Accrued benefits were proposed to be revalued in line with the consumer price index, capped at 5 per cent annually.

A new defined contribution plan was created at the start of the year for new employees, but they will have the option of joining the cash balance Diageo Lifestyle Plan until December 31 2017.

In a joint statement outlining the updated proposal in November last year, GMB, Unite and Diageo said of the future of the DLP: “We can never give complete guarantees on the future of any pension scheme. However, there are currently no reasons for the company to close the DLP to future accrual as the costs of this scheme are comparable to the costs of the new DPP and the risk of this cost increasing is capped – the cost and risk of the DLP is therefore manageable.”

Unite members change their minds

A ballot was held on the proposals late last year. It was accepted by GMB members with 73.7 per cent voting in favour, but rejected by Unite members.

In mid-January, Unite carried out an overtime ban, but later voted in favour of the proposals by a majority of 89 per cent.

A spokesperson for Unite said in a statement: “Following the split vote on the pension proposal, we took the necessary steps to safeguard our members’ position, and used our strong union democracy to consult with members. That process has led us to this overwhelming vote to accept.”

A spokesperson for GMB said the company would now enter a 60-day consultation process and would likely implement the proposals in June or July this year.

A spokesperson for Diageo said the company is proud of the pay and benefits it offers and is committed to providing competitive and sustainable pensions.

"For over a year now we have been in extensive talks with employees in the UK with regard to the future of the final salary pension scheme. In December, we agreed a highly competitive proposal, negotiated with the GMB and Unite trade unions at Acas, and this proposal has now been accepted by the members of both trade unions," the spokesperson said.

"We are pleased by this result as it moves us closer to a fair, secure and sustainable outcome for all colleagues. We will now move into formal consultation on this proposal before deciding whether to implement it."

Volatile liability drives closures

During the campaign, to protect the existing DB arrangement, unions mentioned the profits the drinks company was making and how these compared with the pension scheme. This echoes wider criticism of the schism between spending on deficits and dividends, which came to the fore last year.

But Anne-Marie Winton, partner at Arc Pensions Law, said often decisions about closing a pension scheme were based on factors other than cost.

"You don't actually always close pension schemes for cost savings, but for volatility savings," she said. 

Winton added employers looking at closing DB schemes to new members should consider the risk of creating resentment among the workforce.

She said: "Why are you doing something for new employees and doing something different for existing employees?"