pensions under the Overseas Pensions Act of 1973 against reimbursement by the HKG. Rates of exchange at which these pensions should be fixed and paid should be the personal exchange rates (PERS) of officers on the dates of their retirement. Mr Shipley objected that this would amount to the luck of the draw, to which Mr Haye replied that there could be no fairer arrangement. Officers already accepted the prevailing market rate as their PERS when they retired. Any arbitrary rate above individual PERS for officers who had already retired or could? would produce an unacceptable loss of pension.
R
5. Sir David confirmed that the HKG was working with HMG on the OSPA formula and that Mr Shipley had been at the FCO all that morning discussing the problem; but he could not see HMG accepting any retrospective compensation or anything but the current rate of exchange in a take over of HMOCS pensions. Sir Philip said that compensation was clearly the responsibility of the HKG, and that any take over at the current market rate at over $HK 15 to the pound sterling (now assured for the forseeable future by Britain's entry into the ERM) would be to penalise HK -UK pensioners who had lost too much already.
6.
Mr Haye said that as long as the HKG was working along the lines suggested by OSPA it could expect OSPA support; but that meant making good losses already taken by pensioners as a result of HKG policy and ensuring that pensions continued to be paid at rates of exchange no less favourable than those legitimately expected by officers, i.e. personal exchange rates on dates of retirement. OSPA, and the officers concerned, could not accept anything else.
7. Sir Philip pointed out that expatriate civil servants retiring now and in the future have accumulated a built in degree of protection against the exchange rate risk thanks to the very substantial salary increases awarded in recent years which have in part reflected the increasing cost in HK dollar terms of the perceived sterling liabilities of private sector analogues. This was in sharp contrast to the losses suffered by post- 1976 pensioners in recent years, thanks to the link system, and now probably irrecoverable because of sterling's membership of the ERM.
8. Mr Blye pointed out that if HMG took over responsibility for the payment at current exchange rates then existing pensioners would sustain a double loss a permanent devaluation in the sterling purchasing power of their pensions and taxation of 100% of their pensions instead of the present 90%
9. Mr Blye suggested that pension increases should be related to salary increases in Hong Kong instead of the consumer price index. In this way part at least of the sterling purchasing power of pensions would be protected. Mr Shipley said that pension increases were never related to salary increases and