HSBC News Update: Introduction of New Pension Scheme
HSBC News Update: The ‘world’s local bank’ have introduced a new pension scheme to make sure their staff are not running huge risks with the stock market.
When the chief investment officer for HSBC’s pension funds – totally £21bn – realised that the majority of pension savers weren’t investment experts, nor were they likely to become one over night, his job became a lot easier.
HSBC are due to close their final-salary scheme and make the defined-contribution pension plan the dominant form of savings account for their UK based staff and therefore this factor has a great amount of bearing for them.
The default fund for the scheme – where most members currently end up – has been forced to change in response to this development. Thompson’s move has made HSBC the ‘must talk about’ company with regards to contemporary debates surrounding the pension industry, largely focussing around the question ‘why bother offering diverse investment schemes when the people participating show no interest?’
Millions of staff will be automatically signed up to pension schemes just like this one over the coming years – largely thanks to UK government reforms – and most of these will go into defined-contribution schemes. HSBC’s scheme will catch the eyes of hundreds of companies across the UK and make them think twice about the schemes they enrol their own staff on.
Currently, HSBC’s defined-contribution plan has 36000 members and savings held on behalf of 27000 former employees. This means the assets total £1.5bn. When this is compared to HSBC’s £20bn defined-benefit fund it doesn’t look like a great deal but comparative to the rest of the UK, it is one of the more substantial funds.
The bank are endeavouring to answer the prayers of most of their scheme members, they carried out research that indicated 88% of their staff had no interest in making decisions regarding their pension funds and wanted ‘experts’ to make the decisions for them. This is not particular to HSBC either, surveys done country-wide have returned very similar results but more so that if they do not choose the default fund voluntarily, they end up there through lack of choice.
Prior to the introduction of this scheme, HSBS’s system was pretty much as close to industry standard as they could have got. It was a default fund which was, quite simply, a low-cost equity-index tracker and the majority of their members were introduced into bonds with an ever decreasing risk level.
However, Thompson’s dissatisfaction with this scheme focussed on the ‘10 years from retirement’ part because it might be that if they retire at 65 they might have hit 54 just before a dip – of varying extremes – in the stock market. This was too much of a risk to their members for Thompson to continue the scheme.
The solution offered up is to optimise a contemporary popular idea in asset management circles; diversified growth funds. In the ball park of £66bn is currently invested in these in the UK and, in the long term, they are set to make as much as equities but through the sharing out of investment over assets, e.g. property, private equity and so on.
For more information on the pension scheme discussed here, contact HSBC directly and speak with a member of their customer services department. To discuss the pension scheme offered by other companies, find all of the contact information listed on www.customerservicescontact.co.uk.
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