CONFIDENTIAL
dealing with compensation and sterling safeguards as separate issues. The compensation arrangements which we have already agreed are a necessary ingredient in our package to keep HMOCS members in Hong Kong, but they will fall well short of HMOCS members' expectations which are for a scheme along traditional lines allowing for early retirement and immediate payment of pension. The future value of these pensions is a fundamental concern to HMOCS members and without it there would be little
chance of our 'less attractive' compensation proposals succeeding
in their objective of inducing people to stay on beyond 1997.
The two issues must therefore be dealt with together. The
related question of SPOS is of immediate concern to HMOCS
officers who have already retired - but serving officers are all
too aware of the problems faced by their retired colleagues
through exposure to fluctuating exchange rates and the Hong Kong
Government have identified this as a major area of local concern.
COSTS
i)
COMPENSATION
7.
In 1988 we believed that up to 400 members of HMOCS might be eligible for compensation and we roughly estimated that the
arrangements we proposed would cost between £10 million and
£20 million. We now understand that as
as many at 660 officers could qualify, and in this unlikely event we estimate that the
absolute maximum cost of the scheme will be £44 million. The
likely cost, based on the Hong Kong Government's judgement that 480 officers might stay until 1997, is estimated at between £20 million and £30 million. In order to limit our liability to
future pay rises in Hong Kong, we could state that the compensation will be based on 1991 salary levels and the average 1991 exchange rate, uprated by the movement in the Retail Price Index in future years.
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