HSBC 2002 Annual Report Download - page 206

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
204
disclosures are required from 31 December 2001. These disclosures, to the extent not given in (i), are set
out in (ii).
(i) HSBC Pension Schemes
HSBC operates some 169 pension schemes throughout the world, covering 91% of HSBC’ s employees,
with a total pension cost of US$558 million (2001: US$572 million; 2000: US$422 million;), of which
US$316 million (2001: US$349 million; 2000: US$210 million) relates to overseas schemes. Of the
overseas schemes, US$43 million (2001: US$31 million; 2000:US$30 million) has been determined in
accordance with best practice and regulations in the United States and Canada.
The majority of the schemes are funded defined benefit schemes, which cover 53% of HSBC’ s employees,
with assets, in the case of most of the larger schemes, held in trust or similar funds separate from HSBC.
The pension cost relating to these schemes was US$406 million (2001: US$428 million; 2000: US$341
million) which is assessed in accordance with the advice of qualified actuaries. The schemes are reviewed
at least on a triennial basis or in accordance with local practice and regulations. The actuarial assumptions
used to calculate the projected benefit obligations of HSBC’ s pension schemes vary according to the
economic conditions of the countries in which they are situated.
In the United Kingdom, the HSBC Bank (UK) Pension Scheme covers employees of HSBC Bank plc and
certain other employees of HSBC. This scheme comprises a funded defined benefit scheme (‘the principal
scheme’ ) and a defined contribution scheme which was established on 1 July 1996 for new employees. The
actuarial valuation as at 31 December 2002 is currently in the course of preparation based on the
circumstances as at that date. The latest valuation of the principal scheme was made at 31 December 1999
by C G Singer, Fellow of the Institute of Actuaries, of Watson Wyatt Partners. At that date, the market
value of the principal scheme's assets was US$10,888 million. The actuarial value of the assets represented
104 % of the benefits accrued to members, after allowing for expected future increases in earnings, and the
resulting surplus amounted to US$346 million. The method adopted for this valuation was the projected
unit method and the main assumptions used were a long-term investment return of 6.85% per annum, salary
increases of 4.0% per annum, equity dividend increases and rental growth of 3.5% per annum, and post-
retirement pension increases of 2.5% per annum.
Following an interim review, HSBC decided to increase contributions from 16.9% to 20.0% of pensionable
salaries with effect from 1 August 2002, until completion of the actuarial valuation as at 31 December
2002.
HSBC has given preliminary consideration to its funding strategy in advance of knowing the results of the
2002 triennial valuation. The funding policy itself is reviewed on a systematic basis in consultation with the
independent Scheme Actuary in order to ensure that the funding contributions from the sponsoring
employers are appropriate to meet the liabilities of the Scheme over the long term. Full valuation
calculations are currently in hand but HSBC anticipates there will be a shortfall of at least US$800 million
on the funding basis which will be adopted for the Scheme. HSBC has therefore decided to pay this
amount into the Scheme (this amount has been paid since the year end). Further contributions to the
Scheme will be assessed after considering the advice of the independent Scheme Actuary and taking into
account long-term rates of returns on the underlying investments assessed with an appropriate degree of
prudence.
In Hong Kong, the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme covers employees of
the Hongkong and Shanghai Banking Corporation Limited and certain other employees of HSBC. The
scheme comprises a funded defined benefit scheme (which is a lump sum scheme) and a defined
contribution scheme. The latter was established on 1 January 1999 for new employees. The latest
valuation of the defined benefit scheme was made at 31 December 2002 and was performed by E Chiu,
Fellow of the Society of Actuaries of the United States of America, of HSBC Life (International) Limited, a
subsidiary of HSBC Holdings. At that date, the market value of the defined benefit scheme’ s assets was