HSBC 2008 Annual Report Download - page 368

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 8
366
The Trustee and the bank will monitor progress towards closing the deficit and reassess the deficit in the light of the
triennial valuation that is currently being performed as at 31 December 2008. This valuation process is currently
underway and is due to be completed no later than 31 March 2010. Future funding commitments will be determined
on conclusion of the actuarial valuation.
As part of the 31 December 2005 valuation, calculations were also carried out as to the amount of assets that might be
needed to meet the liabilities if the plan 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 was estimated at 31 December 2005 to be
US$26,700 million. In estimating the solvency position for this purpose, a more prudent assumption about future
mortality was made than for the assessment of the ongoing position and it was assumed that the Trustee would alter
the investment strategy to be an appropriately matched portfolio of cash and interest and inflation swaps. An explicit
allowance for expenses was also included.
The benefits payable from the defined benefit plan are expected to be as shown in the chart below:
Benefit payments (US$m)
0
200
400
600
800
1,000
1,200
1,400
1,600
2009 2019 2029 2039 2049 2059 2069 2079 2089 2099
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 2007. At that valuation date, the market value of
the defined benefit scheme’s assets was US$1,183 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$192 million. On a wind-up basis, the
scheme’s assets represents 125 per cent of the members’ vested benefits, based on current salaries, and the resulting
surplus amounted to US$237 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.
The HSBC North America (U.S.) Retirement Income 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 2008. At that date, the actuarial value of the plan's assets was equal to market value
of US$2,616 million. The assets represented 105 per cent of the benefits accrued to members as valued under the
provisions of the Pension Protection Act of 2006 that was effective for the plan year beginning 1 January 2008.The
resulting surplus amounted to US$122 million. The method employed for this valuation was the projected unit
method and the discount rate was determined using a full yield curve method, which resulted in an effective interest
rate of 6.4 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 35 per cent of HSBC’s employees.