HSBC 2003 Annual Report Download - page 251

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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’ ) which is closed and a defined contribution scheme which was established on 1 July 1996 for new
employees. The latest valuation of the principal scheme was made at 31 December 2002 by C G Singer,
Fellow of the Institute of Actuaries, of Watson Wyatt LLP. At that date, the market value of the principal
scheme’ s assets was US$9,302 million. The actuarial value of the assets represented 88 per cent of the
benefits accrued to members, after allowing for expected future increases in earnings, and the resulting
deficit amounted to US$1,270 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 cent per annum, salary
increases of 3.0 per cent per annum, and post-retirement pension increases of 2.5 per cent per annum.
In anticipation of the above valuation result, HSBC made a payment into the scheme in February 2003
amounting to US$817 million. In addition, following receipt of the valuation results, a further payment of
US$137 million was made into the scheme. HSBC has decided to continue ongoing contributions to the
scheme at the rate of 20 per cent of pensionable salaries until completion of the next actuarial valuation, due
as at 31 December 2005.
The deficit as at 31 December 2002 is being amortised over a thirteen year period, the average remaining
service life of the existing employed members. The amortisation is net of the interest benefit from the
payments of US$817 million in February and US$137 million in August 2003.
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 2003 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 US$883 million.
On an ongoing basis, the actuarial value of the scheme’ s assets represented 121 per cent of the benefits
accrued to members, after allowing for expected future increases in salaries, and the resulting surplus
amounted to US$156 million. On a wind-up basis, the actuarial value of the scheme’ s assets represents
124 per cent of the members’ vested benefits, based on current salaries, and the resulting surplus amounted
to US$169 million. The actuarial method used was the projected unit credit method and the main
assumptions used in this valuation were a long-term investment return of 5.5 per cent per annum and salary
increases of 4.5 per cent per annum.
In the United States, the HSBC Bank USA Pension Plan (the ‘principal scheme’ ) covers employees of
HSBC Bank USA and certain other employees of HSBC. The latest valuation of the principal scheme was
made at 1 January 2003 by R G Gendron and K G Leister, Fellows of the Society of Actuaries, of Hewitt
Associates LLC. At that date, the market value of the scheme’ s assets was US$878 million. The actuarial
value of the assets represented 92 per cent of the benefits accrued to members, after allowing for expected
future increases in earnings, and the resulting deficit amounted to US$81 million. This deficit was
eliminated by means of contributions made to the scheme in 2003. The method employed for this valuation
was the projected unit credit method and the main assumptions used were a discount rate of 6.75 per cent
per annum and average salary increases of 3.75 per cent per annum.
The acquisition of Household International brought with it additional retirement benefit schemes. The
largest of these is Household International Retirement Income Plan, which comprises a funded defined
benefit scheme (the ‘Household principle scheme’ ) which is closed and a cash balance plan which was
established on 1 January 2000.
The last reported actuarial valuation was made as at 1 July 2003. At that date, the market value of the
Household principle schemes assets was US$853 million, representing 127 per cent of the benefits accrued
to members, after allowing for future increases in earnings. The resulting surplus amounted to US$181
million. The method employed for this valuation was the projected unit credit method and the main