PRIORITY
desirable to try to confine the scheme within an agreed ceiling: or, alternatively, to devise a mechanism whereby our financial
commitment would be reviewed closer to 1997. We appreciate that
these ideas will not be at all attractive to you, but the
concerns which underlie them genuinely reflect the reality of
the financial climate in which we are operating.
5.
Another way of dealing with the concern about potential
salary inflation would be to base the scheme on the salary
Levels prevailing at the time the scheme is announced, adjusted
by a factor to take account of inflation, (ie UK inflation).
But if the scheme was denominated in Hong Kong dollars, and if
the inflation rate in Hong Kong exceeded that of the UK, HMOCS
members could well lose out.
6.
Denominating the scheme in sterling would overcome these
problems but would open up the wider issue of sterling
safeguards for HMOCS members' pensions. In practice, whatever
sterling rate was applicable for compensation arrangements would
probably become the benchmark for a sterling guarantee for HMOCS
pensions. The introduction of a sterling link in the context of
a compensation arrangements would therefore require the
decisions on the wider issue of sterling safeguards for
pensions.
7. The question in any case arises whether the time has now
come to tackle the question of sterling safeguards for pensions
It is clear that concern about this issue is mounting,
particularly given the decline in the value of the Hong Kong
dollar in recent months. It is therefore arguable (but I would
be grateful for your views) that the announcement of
compensation arrangements would have little positive impact on
HMOCS members in Hong Kong, in the absence of concrete