HSBC 2007 Annual Report Download - page 370

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 8
368
Benefit payments (US$m)
0
200
400
600
800
1, 0 0 0
1, 2 0 0
1, 4 0 0
1, 6 0 0
1, 8 0 0
2,000
2007 2018 2029 2040 2051 2062 2073 2084
In Hong Kong, the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme covers employees of The
Hongkong and Shanghai Banking Corporation and certain other employees of HSBC Group. The scheme comprises a
funded defined benefit scheme (which provides a lump sum on retirement but is now closed to new members) and a
defined contribution scheme. The latter was established on 1 January 1999 for new employees. The latest valuation of
the defined benefit plan was made at 31 December 2006 and was performed by Estella Chiu, Fellow of the Society of
Actuaries of the United States of America, of HSBC Life (International) Limited, a subsidiary of HSBC Holdings. At
the valuation date, the market value of the defined benefit scheme’s assets was US$1,109 million. On an ongoing
basis, the actuarial value of the scheme’s assets represented 119 per cent of the actuarial present value of the benefits
accrued to members, after allowing for expected future increases in salaries, and the resulting surplus amounted to
US$174 million. On a wind-up basis, the scheme’s assets represented 126 per cent of the members’ vested benefits,
based on current salaries, and the resulting surplus amounted to US$228 million. The attained age method has been
adopted for the valuation and the major assumptions used in this valuation were a discount rate of 4 per cent per
annum and long-term salary increases of 3 per cent per annum (with short-term deviation from 2007 to 2008).
The HSBC North America (U.S.) Retirement Income Plan was formed with effect from the close of business on
31 December 2004 by the merger of the HSBC Bank USA Pension Plan and the Household International Retirement
Income Plan. This plan covers employees of HSBC Bank USA, HSBC Finance, and certain other employees of
HSBC USA. It comprises a final average pay plan (now closed to new participants) and a cash balance plan. All
new employees participate in the cash balance plan. The most recent actuarial valuation of the plan was made at 1
January 2007 by Pedro Nebres, Fellow of the Society of Actuaries and John P. Ennenbach, Enrolled Actuary, of
Mercer. Both are members of the American Academy of Actuaries. At that date, the market value of the merged
plan’s assets was US$2,577 million and the actuarial value of assets was US$2,504 million. The actuarial value of
the assets represented 119 per cent of the benefits accrued to members, after allowing for expected future increases
in earnings. The resulting surplus amounted to US$407 million. The method employed for this valuation was the
projected unit credit method and the main assumptions used were a discount rate of 8 per cent per annum and
average salary increases of 3.75 per cent per annum.
The HSBC Bank (UK) Pension Scheme, The HSBC Group Hong Kong Local Staff Retirement Benefit Scheme, and
the HSBC North America (U.S.) Retirement Income Plan cover 33 per cent of HSBC’s employees.
HSBC healthcare benefits plans
HSBC also provides post-employment healthcare benefits under plans in the UK, the US, Canada, Mexico, France
and Brazil, the majority of which are unfunded. Post-employment healthcare benefits plans are accounted for in the
same manner as defined benefit pension plans. The plans are reviewed at least annually or in accordance with local
practice and regulations by qualified actuaries. The actuarial assumptions used to calculate the defined benefit
obligation and related current service cost vary according to the economic conditions of the countries in which they
are situated. Total healthcare cost was US$33 million (2006: US$62 million; 2005: US$58 million).