Dairy Crest has become the latest company to plug a gap in its pension fund with a non-cash asset, in this case stocks of its award-winning Cathedral City cheddar cheese.

The milk producer has signed over its maturing cheddar inventory to the company pension scheme, which had a deficit of £84m in September 2012. The pension fund will pay a cash loan of £60m in return for the stock, which was valued at £150m at the end of March.

Dairy Crest will also make a one-off cash payment of £40m to cut the deficit, which will be funded from the proceeds of the sale of its French branded spreads business, St Hubert, last year.

The pension fund will invest in the value of cheese as it matures, rather than in stocks or bonds. In return, Dairy Crest will pay the pension fund a floating charge on the cash sum.

Were the company to become insolvent, the pension fund could sell the 20,000 tonnes of cheese to pay its pensioners an income.

The company has been working to reduce its pension deficit over the last five years. It closed its final salary linked pension scheme to new members in 2010 and completed a £300m bulk annuity deal in 2009, in which it exchanged UK gilts for an insurance policy to cover a portion of the pension liabilities.

It also makes annual contributions of £20m to its pension scheme to reduce the shortfall.

Mark Allen, chief executive of Dairy Crest, said: 'Following the successful sale of St Hubert, we have now restructured our balance sheet, putting in place a more appropriate capital structure. This will reduce interest costs going forward and underpin the dividend and still gives us scope to invest to grow the business. We are also pleased to have reached agreement with the Trustee of the Pension Fund to improve its financial position at an acceptable cash cost to the company.'