February 17, 2013 3:26 am

HSBC to end final salary scheme

An HSBC building©Reuters

The bank denies the move is to do with cost cutting

HSBC is to draw the curtains on its defined benefit (DB) pension fund from next year for all existing members.

It has launched a consultation with UK employees and proposes that active members of the DB section will no longer be able to build up benefits after June 30 2014.

In a letter to employees, Tony Ashford, chairman of trustees, HSBC Bank Pension Trust UK, who was also up until recently a non-executive director of the UK’s Financial Services Compensation Scheme, said any future pension provision would be built up in the defined contribution section of the scheme.

He added that the proposed changes would not affect the benefits of pensioners and deferred members of the DB scheme and that the trustee board will be working to make sure benefits already built up in the scheme for all members are protected.

DB schemes, seen as the gold-standard of pension plans in the UK, have been scrapped by most companies for new employees. Employers say the plans have become expensive and unsustainable. HSBC itself closed its arrangement to new employees in 1996.

A survey by the National Association of Pension Funds last month showed that there was a significant jump in DB schemes being closed to existing members. The number increased from 23 per cent in 2011 to 31 per cent last year.

Many such schemes were forced to do so because of poor investment returns and increased longevity, which have added significant cost pressures.

An HSBC spokesman, however, insisted that the move was not a cost-cutting measure.

“For a vast number of our employees, this will result in an improved set of pensions and benefits. Central to the proposal is for all staff on UK-based employment contracts, regardless of role or seniority, to be provided with private healthcare and a competitive defined contribution section of the pension scheme, where the bank would continue to provide a core contribution of 8 per cent of annual salary and increase the contribution on a matching basis up to an additional 8 per cent of annual salary.”

HSBC added: “To make these proposals sustainable, changes would also need to be made to some terms and benefits that are currently in place. This would include members of the bank’s DB section of the pension scheme building up future benefits, from July 2014, in the defined contribution pension scheme.”

Almost three-quarters of the bank’s 50,000 employees in the UK belong to the defined contribution section of the HSBC Bank (UK) Pension Scheme.

The consultation period, which involves employees, the trade union Unite and other representative bodies, will end on April 5. HSBC will announce the outcome of those talks later in 2013.

The closure comes just weeks after Barnardo’s, the children’s charity, said it is to close its final salary scheme to existing members from the end of March to reduce liabilities.

Kevin Barnes, director of finance at Barnardo’s, said managing the pension deficit was vital. “Making this change now will enable us to limit Barnardo’s future risks, meeting our longstanding commitment to honour the already accrued staff benefits in the old pension scheme and ensure greater parity of benefits across our staff.”

The Barnardo Staff Pension Scheme’s liabilities stood at £548m with a shortfall of £83.9m at the end of March 2012, up from £73.4m a year earlier.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

ABOUT FTfm

FTfm is the voice of the global fund management industry, providing must-have news and sharp analysis to the world’s top asset managers and professional investors.

FTfm videos

SHARE THIS QUOTE