HSBC 2009 Annual Report Download - page 393

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The payments of £465 million (US$754 million) to be made in each of 2012, 2013 and 2014 reflect the funding
payments agreed following the 2005 triennial actuarial valuation.
HSBC considers that the contributions set out above, together with investment returns at an expected level of
240 basis points above the LIBOR swap curve, would be sufficient to meet the deficit as at 31 December 2008 over
the agreed period. At each subsequent actuarial valuation, HSBC has agreed with the Trustee that any shortfall in
investment returns relative to this expected level, subject to a maximum of 50 basis points per annum, will be
eliminated by payment of equal cash instalments over the remaining years to the end of this recovery plan period.
HSBC Bank plc also agreed to make ongoing contributions to the principal plan in respect of the accrual of benefits
of defined benefit section members at various rates dependent on the benefit accrual options selected. The average
rate is estimated to be 34 per cent of pensionable salaries (less member contributions) payable from 1 April 2010 until
the completion of the next actuarial valuation, due as at 31 December 2011. The average rate is reflective of the
different membership groups following changes made to the Scheme during 2009. During 2009, HSBC paid
contributions at the rate of 38 per cent of pensionable salaries and will continue contributions at this rate until
31 March 2010.
On 1 July 2009, changes to the design of the defined benefit section of the principal plan were introduced. This
included the introduction of employee contributions, optionality concerning future benefit accrual and, with effect
from 1 April 2010, an increased Normal Retirement Age of 65 years. In addition, enhancements to the defined
contribution section were also introduced.
As part of the 31 December 2008 valuation, calculations were also carried out as to the amount of assets that
might be needed to meet the liabilities if the Scheme was discontinued and the members’ benefits bought out with an
insurance company (although in practice this may not be possible for a plan of this size) or the Trustee continued to
run the plan without the support of HSBC. The amount required under this approach is estimated to be £19.8 billion
(US$28.9 billion) as at 31 December 2008. In arriving at this estimation, a more prudent assumption about future
mortality was made than for the assessment of the ongoing position and it was assumed that the Trustee would alter
the investment strategy to be an appropriately matched portfolio of UK government bonds. An explicit allowance
for expenses was also included.
Benefit payments (US$m)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2010 2020 203 0 2040 2050 2060 2070 2080 2090 2100
The benefits payable from the defined benefit plan are expected to be as shown in the chart above.
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 scheme was made at 31 December 2008, and was performed by Estella Chiu, fellow
of the Society of Actuaries of the United States of America, of HSBC Insurance (Asia) Limited, a subsidiary of
HSBC Holdings. At that valuation date, the market value of the defined benefit scheme’s assets was
US$1,072 million. On an ongoing basis, the actuarial value of the scheme’s assets represented 103 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$34 million. On a wind-up basis, the scheme’s assets represented
104 per cent of the members’ vested benefits, based on current salaries, and the resulting surplus amounted to
US$44 million. The attained age method has been adopted for the valuation and the major assumptions used in this
valuation were a discount rate of 6 per cent per annum and long-term salary increases of 5 per cent per annum.