Extract from Chapter Nine
Rennie Report
Annex F
Exchange rate variations
9.9
in
Strong representations were made to us submissions by and on behalf of expatriate officers that the movement of the exchange rate between sterling and
sterling and the Hong Kong dollar
was a factor to which we should give special consideration in our recommendations about pay, and also more particularly about pensions. We understand and sympathise with the
the serious problems and anxieties that prompted recommendations.
9.10
The history of the exchange rate over the last 25 years or So (an appropriate period to take when considering the effects of exchange rate fluctuations on career earnings and pensions) shows that it has fluctuated from a low point of $16 to the pound in 1967 to a high point of $7.95 to the pound in 1979. More recently it has for some months stood at around $13.25. The fixed link established for a
for a number of years now between the Hong Kong and US dollars means that the sterling rate is likely to continue to vary, and it is clear that such variations inevitably affect those who earn their incomes in Hong Kong and have financial commitments
in the United Kingdom.
9.11
Though we sympathise with those affected, we are clear that we cannot and should not put forward any specific recommendations on this subject, whether in relation to pay or to pensions. Choosing to work abroad on expatriate terms has its advantages and disadvantages, and, the movement of the exchange over the last 25 years has shown,
shown, exchange rate variation can sometimes be an advantage and sometimes a disadvantage. We do not think it would be acceptable to the taxpayer to provide guarantees against the disadvantages without also having some mechanism for recovering windfall gains; and, apart from the elementary but intractable problem of choosing the base rate, we do not think the practical problems of pay fluctuating downwards with the exchange could
acceptably overcome.
be
9.12
At the minimum, the proposition has been put forward that pensions at least should be protected against a hypothetical catastrophic fall in the exchange rate. We simply do not accept the hypothesis; but even if we did, we find we would have
would have to reject this apparently straightforward and appealing idea. If there were
If there were a catastrophic fall in the exchange rate, this would affect all the retired employees of the Hong Kong Government, including not only those who retire to the
but also those in Hong Kong itself and the substantial numbers who
who have retired to live in many
many other parts of the world as well; and we do not think it would be equitable to add to the immense problems that would face the Hong Kong taxpayer the further burden of finding foreign exchange to protect the pensions of any particular element, large or small, among Hong Kong's, retired public servants.
UK,