Reference..
Mr Stone
Hong Kong Department/FCO
Pa
HEB 431 /4
14 NOV 1990
26/14/2
4
FROM: D S FISH
(Ext 3444)
DATE: 9 November 1990
cc Mr Kerby
not the 'feet this
nam
189
PONDEN
CORRESPO
HONG KONG: SPÓS AND EXCHANGE RATE CORRESPONDENCE
Thank you for your letter of 18 October (BATAIA) and your two letters of 1 November (ROZAUM/SIPAMI),
2.
Given our lack of progress with the Treasury perhaps we had better refrain from making remarks to HMOCS staff which might be seen as provocative. As you know, I doubt whether we can avoid the 'collision course with the Treasury' on the main question of sterling safeguards. While we gird our loins on that front, I am considering whether to ask the Treasury if they have any objection to a refinement of the SPOS rules which would benefit many Hong Kong pensioners.
3.
any
As you know, SPOS is calculated by deducting the sterling value of any local increases from the UK increases that would have been paid on an equivalent UK pension. In addition, we treat as a local increase, sterling bonus resulting from the basic pension being paid in any month at a more favourable rate than that used at an officer's retirement to calculate the basic sterling pension. However, the converse does not take place. If the basic pension is paid at less than the retirement rate, the shortfall is not topped up by SPOS directly, nor is the value of local increases adjusted to take account of the shortfall. As a result the pensioner does not receive overall, the full sterling value of an equivalent UK pension. In short, we gain on the swings and the pensioners lose on the roundabouts, which makes the SPOS system very difficult to defend for all on current rated basic pensions.
4. It is not clear whether current legislation would allow us to top up the basic pension directly, and we are taking legal advice. The current system was, of course, agreed with the Treasury at the time we dispensed with the bizarre pre-1976 arrangements. But this was at a time when the Hong Kong dollar was appreciating against sterling, and it is no good saying to those suffering now that their predecessors did very well indeed.
5. In considering whether to seek Treasury agreement to at least take into account the depreciation in the value of the basic pension when quantifying overseas increases, we have to recognise that the end result would be a backdoor, and not entirely satisfactory, method of sterling protection. And it might compromise our position on sterling safeguards as a whole. I should like to discuss this with you and Alan Paul in the margins of the Shipley meetings next week.
5.
For the time being we can but point out to correspondents the high level of Hong Kong salaries (even at current exchange rates) in comparison with UK public service salaries; the generous pension increases awarded by Hong Kong; the significantly faster accrual rate for Hong Kong pensions prior to the
ODE 18-77
500089930 NIWO
SUBSUBAO 22:ST 06. AON 60
@ao