30 July 1991
M J Waters
Civil Service Branch
HONG KONG
Dear Mikey
PROPOSED REFORM OF SPOS
CONFIDENTIAL
нив 233
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1 AUG 199!
g
SM DRD
Foreign &
Commonwealth
Office
London SW1A 2AH
Telephone: 071-
1270 265-
1. You asked for more details on the CDA's proposed reform. Basically, the ODA have proposed a refinement of the SPOS calculations which would allow losses in the sterling value of the baisc pension to be taken into consideration.
2.
As you know at present SPOS is calculated by deducting the sterling value of any local (Hong Kong) increases from the UK pension increase. In addition, any 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 is treated as a local increase and deducted from SPOS. But 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. The SPOS system works so that if, for example, a local pension increase of 15% was awarded and the UK increase was 10%, the pensioner would be deemed to have gained 5%. He would therefore be paid no SPOS. However, no account would be taken of a decrease in the value of the basic pension.
3. The ODA propose that the pensioner may be paid up to the same level of increases from UK funds as those paid to his UK equivalent, providing his total pension entitlement (including his Hong Kong basic pension increases) does not in any one month exceed the total pension paid to his Home Civil Service counterpart. Thus a Hong Kong pensioner could receive both his Hong Kong pension and the full UK pension increase if his total pension was then still less than the UK pension (plus increase).
4. The ODA have floated this proposal, which they estimate would cost at least £2-£3 million per annum, informally with the Treasury. The Treasury were opposed on the grounds of cost and because of the link with the wider issue of sterling safeguards. The ODA argue that their proposal does not consititute a sterling safeguard. It would not protect
WINALX
TG
CONFIDENTIAL
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