Illustration of charges and disclosure costs

The Sponsoring employer currently pays the AMC platform expenses and administration costs.

Additional expenses (“AE”) are covered by members and are those costs incurred in the management of the underlying funds which are, by nature, flexible and therefore fall outside of the AMC, for example, custodian, professional adviser fees etc. Over a period of time, the charges and transaction costs that are taken out of a member’s pension savings can reduce the amount available to the member at retirement.

HSBC Table

The following table sets out an illustration of the impact of charges and transaction costs on the projected value of an example member’s DC pension pot. In preparing this illustrative example, the Trustee has had regard to the relevant statutory guidance.

As each member has a different amount in their DC pension pot within the Scheme and the amount of any future investment returns and future costs and charges cannot be known in advance, the Trustee has had to make a number of assumptions about what these might be. The assumptions are explained below:

  • The “before costs” figures represent the savings projection assuming an investment return with no deduction of member borne charges (i.e. the additional expenses) or transaction costs. The “after costs” figures represent the savings projection using the same assumed investment return but after deducting member-borne charges and an allowance for transaction costs.
  • The transaction cost figures used in the illustration are those provided by the DC fund managers over the past three years, subject to a floor of zero (so the illustration does not assume a negative cost over the long term). We have used the average annualised transaction costs over the past five years as this is the longest period over which figures were available and should be more indicative of longer-term costs compared to only using figures over the Scheme Year.

Illustrations are provided for the default option for members with only a DC pension pot (the Flexible Income Strategy) since this is the arrangement that most members have assets in, the Lump Sum Strategy (which is the default for most members with Hybrid benefits), the Annuity Purchase Strategy, the Cash Lifecycle and the Cash – active Fund as these strategies are also classified as default arrangements as well as two DC funds from the Freechoice DC fund range. The two Freechoice DC funds shown in the illustration are:

  • the DC fund with the highest charges; UK Equities - active
  • the DC fund with the lowest charges; Shariah Law Equities Fund - Passive The charges illustration table is shown below.
Years invested Flexible Income Strategy Lump Sum Strategy Annuity Purchase Strategy Cash Lifecycle
Before costs After costs Before costs After costs Before costs After costs Before costs After costs
1 £4,500 £4,500 £4,500 £4,500 £4,500 £4,500 £4,500 £4,500
3 £9,900 £9,900 £9,900 £9,900 £9,900 £9,900 £9,900 £9,900
5 £15,600 £15,500 £15,600 £15,500 £15,600 £15,500 £15,600 £15,500
10 £31,200 £31,000 £31,200 £31,000 £31,200 £31,000 £31,200 £31,000
15 £49,100 £48,700 £49,100 £48,700 £49,100 £48,700 £49,100 £48,700
20 £69,700 £68,700 £69,700 £68,700 £69,700 £68,700 £69,700 £68,700
25 £92,000 £90,300 £92,000 £90,300 £92,000 £90,300 £92,000 £90,300
30 £115,000 £111,700 £115,000 £111,700 £115,000 £111,700 £115,000 £111,700
35 £136,100 £130,600 £136,100 £130,600 £132,800 £127,900 £137,600 £131,800
40 £151,100 £143,500 £148,300 £141,300 £136,900 £131,700 £149,600 £142,100
Percentage Difference 5.3% 5.0% 3.9% 5.3%

ShariahLaw Equities-Passive UKEquities-active
Years invested Before costs After costs Before costs After costs
1 £4,500 £4,500 £4,500 £4,500
3 £9,900 £9,900 £9,900 £9,800
5 £15,600 £15,500 £15,600 £15,400
10 £31,200 £31,200 £31,200 £30,600
15 £49,100 £49,000 £49,100 £47,700
20 £69,700 £69,400 £69,700 £67,000
25 £93,200 £92,800 £93,200 £88,600
30 £120,100 £119,500 £120,100 £113,000
35 £150,900 £150,000 £150,900 £140,400
40 £186,200 £184,900 £186,200 £171,300
Percentage Difference 0.7% 8.7%


Notes

  • Values shown are estimates and are not guaranteed. The illustration does not indicate the likely variance and volatility in the possible outcomes from each DC fund. The numbers shown in the illustration are rounded to the nearest £100 for simplicity.
  • Projected DC pension pot values are shown in today’s terms, and do not need to be reduced further for the effect of future inflation.
  • Annual salary growth and inflation is assumed to be 2.5%. Salaries could be expected to increase above inflation to reflect members becoming more experienced and being promoted. However, the projections assume salaries increase in line with inflation to allow for prudence in the projected values.
  • The starting account (pot) size used is £1,900. This is the average (median) pot size for Scheme members aged 25 years and younger (we have used the average of the under 25s rather than the average of the whole Scheme to allow for a more representative 40-year projection rather than using a median member who will not be invested in the Scheme for 40 years). This assumption, and others mentioned, are as at 31 December 2022, the Scheme Year end.
  • The projection is for 40 years, being the approximate duration that the youngest Scheme member has until they reach the Scheme Normal Pension Age.
  • The starting salary is assumed to be £25,000. This is the median salary for Scheme members aged 25 years and younger.
  • The contribution rate is assumed to be 10% (includes employee and employer contributions). This is the median contribution rate for Scheme members aged 25 years and younger (for the purposes of the illustration this rate is assumed to remain constant over time).
  • None of the investments modelled have a performance fee attached.
  • The projected before charges annual returns used are as follows:
    • Flexible Income Strategy: 2.8% above inflation for the initial years, gradually reducing to a return of 0.3% below inflation at the ending point of the lifestyle.
    • Lump Sum Strategy: 2.8% above inflation for the initial years, gradually reducing to a return of 0.9% below inflation at the ending point of the lifestyle.
    • Annuity Purchase Strategy: 2.8% above inflation for the initial years, gradually reducing to a return of 2.2% below inflation at the ending point of the lifestyle.
    • Cash Lifecycle: 2.8% above inflation for the initial years, gradually reducing to a return of 2.0% below inflation at the ending point of the lifestyle. We have shown projections over 40 years however the strategy is closed to new members and all members in this strategy are at least at their Target Retirement Age.
    • Cash – active (default) Fund: 2.0% below inflation
    • Shariah Law Equities – passive: 2.8% above inflation
    • UK Equities – active: 2.8% above inflation
  • No allowance for active management has been made in the return assumptions (e.g. assumed return for a passive and active global equity fund is equal). Expected returns are consistent with those used in the Scheme’s Statutory Money Purchase Illustrations and were produced taking account of AS TM1.

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Governance Statement

More information

Default investment strategy 

The Trustee has made available a range of investment funds for members. Each member is responsible for specifying one or more funds for the investment of their account, having regard to their attitude to the risks involved. If a member does not choose an investment option, their account will be invested into the default option applicable to them, which is managed as a “lifecycle” strategy (ie it automatically combines investments in proportions that vary according to the time to retirement age). The lifecycles are 100% invested in equities until twenty years from a member’s target retirement age from which point they transition gradually into less risky assets appropriate to the outcome targeted.

Member Charges 

The Trustee is required to set out the charges incurred by members over the period covered by this statement. As the sponsoring employer pays the Annual Management Charge (AMC), platform expenses and administration expenses, member charges are limited to the additional fund expenses incurred by the underlying managers in the day-to-day running of the funds.

Value for money for members 

The Trustee carried out a value for members’ assessment, looking back over the Scheme year to 31 December 2019. The Trustee is required to assess the extent to which member borne charges and transaction costs for the Scheme Year represent good value for members.