UK - HSBC is consulting its pension fund members and employees about a series of options for its defined benefit fund, which could see employees share the costs of maintaining the DB scheme by introducing employee contributions of up to 5% by 2012.

The proposals, which were announced to staff yesterday, affect both the company's defined contribution (DC) scheme, of which two-thirds of employees are members, and the £10.6bn (€13.4bn) DB scheme which closed to new members in 1996.

HSBC said the proposals are part of a bigger initiative to improve the flexible benefits for employees, but admitted the two main issues for altering the schemes are to make the DC plan more competitive and attractive to employees, while addressing the issue of longevity in the DB scheme.

The UK DB scheme, the largest retirement plan managed by the firm, currently has £10.6bn of assets but an actuarial shortfall of £1.2bn, despite contributing one-off payments totalling £1.3bn over the past three years.

HSBC currently contributes 38% of employee's pensionable salary, but officials claim escalating life expectancy is significantly increasing the risk sand costs to the firm as each extra year of life expectancy adds £340m to the scheme's liabilities.

As a result, HSBC has put forward three options for sharing the growing costs with members in an effort to put the DB scheme on a "more sustainable basis in the long-term":

To continue an accrual rate of 1/60th of final salary, members will be asked to contribute 2% of their salary from January 2009, rising to 5% by January 2012 To continue the DB scheme without employee contributions but at an accrual rate of 1/80th final salary starting in January 2009, although this would not affect pension rights already accumulated For members to leave the DB scheme, retaining the pension already accrued, and switch to the DC scheme In addition, the firm is proposing to increase the normal retirement age from 60 to 65, although members will still be able to retire at the previous retirement age but with a reduced payment on pension rights built-up after April 1 2010.

HSBC has also unveiled proposals to improve the DC scheme which all new members go into, as a spokesperson said the firm had recognised the scheme "is not particularly competitive, and we need to improve it to recruit and retain employees".

As a result, the banking group is proposing to increase its contributions from the existing level of 6% of employees' salaries, and a matching contribution of up to 2% of salary, to 8% of salary and a 5% matching contribution.

Dyfrig John, deputy chairman and chief executive of HSBC Bank, said: "In our pension arrangements we need to address a simple reality. People are living longer. On average, someone retiring in 2025 can expect to live 10 years longer than someone who retired in 1980. No company can ignore this stark reality - not even one as financially secure as HSBC."

John claimed "extensive employee research" had shown members of the DB scheme want the scheme to continue and if necessary they would be prepared to make contributions for the first time, but would like some options to choose from.

"The proposed changes meet these objectives. Today marks the beginning of a comprehensive consultation programme. We will encourage all our people to make their voices heard over the next two months," he added.

The consultation process officially begins on June 20 and ends on August 20 2008, however the trade union Unite has criticised the proposals for leaving many staff in a "precarious financial situation".

Graham Goddard, deputy general secretary of Unite, said: "The proposals are a slap in the face for the long-serving employees. Unite is furious that HSBC is citing a financial justification for the changes when it made profits of £13bn last year.

"HSBC is robbing Peter to pay Paul. It is disgraceful that the bank has had no consultation with Unite on any element of the new packages. The union will now meet with our members to discuss their concerns and prepare our response to these proposals," he added. 

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