UK – The new head of HSBC’s defined contribution business is eyeing DC growth in the UK at the same time as the UK bank’s chairman is saying that defined benefit pension liabilities have become a “critical” issue.
“I believe you can make money out of stakeholder,” said Geoff Cheetham, head of DC and institutional business, in an interview. Stakeholder is a low-cost supplementary pension, with management charges capped at 1%; it was introduced in 2001. “For this company, the potential is absolutely huge. That’s largely because we’ve got all the elements here.”
By elements he means HSBC’s various operating arms, such as investment banking and private banking – alongside a retail presence.
According to HSBC’s 2002 annual report released today, it is the fifth largest provider of UK pensions, with a 6% share of the stakeholder pension market. Stakeholder is a low-cost supplementary pension, with management charges capped at 1%.
With 22 billion dollars in pension assets, HSBC is “clearly punching below our weight” in the UK pensions market, Cheetham says. It currently has around 12,000 corporate stakeholder accounts.
Cheetham, 41, recently joined HSBC from Merrill Lynch Investment Managers, where he was co-head of institutional defined contribution business.
He sees the number of DC providers falling to less than 10 providers from the current 40. He suggests the market could be reaching an “inflection point” where DC contributions begin to match DB payments.
Separately, HSBC reported its 2002 earnings today, in which the bank’s chairman Sir John Bond said DB schemes have an “unquantifiable but increasing” cost to shareholders.
“Although this issue is critical there is time to address the problem,” Bond said.
Bond welcomed the new FRS17 accounting standard. “We welcome the enhanced accounting disclosures in FRS17, which shed more light on the financial position of company pension schemes.”
The bank is to put 500 million pounds into its main UK scheme in 2003 “in order to recognise the changing demographics and investment returns. It said the scheme’s investment income covered “more than 90%” of the pensions payable from it.
“UK Banking in 2002 reported growth of 17% in HSBC branded life, pensions and investment products,” it said
At the end of the year it had set aside 3.9 million dollars to provide pension, retirement or similar benefits for its directors and senior management
HSBC said its total funds under management at the end of 2002 rose 8%, or 22 billion dollars, to 306 billion dollars.
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