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4.
Alternative costings can be prepared using different assumptions about exchange rates, by following the calculation method outlined in paragraph 2 above. For example, an assumed current pensions bill of HK$160m a year, with a safeguarded rate of HK$16 to fl and a prevailing rate of HK$20 to £l, would cost HMG around £2m a year. Using a projected pension bill of £244m for 2011 and the same exchange rates, the additional cost for that year would be about £3m.
SPOS Adjustments
5. Any future estimates of the potential costs of rationalising the SPOS arrangements are subject to the same verification from Hong Kong on numbers and pension values as are the sterling safeguard projections. As we have explained previously, the proposals affect officers in different ways, depending on factors such as their retirement dates, the relationship between the value of the basic pension originally awarded and the value of subsequent overseas increase awards, and their existing SPOS entitlement. therefore very difficult to make any accurate predictions of the costs involved.
6. You will see from paragraph 6 of my letter of
It is
15 October, and from Annex C of Nigel Cox's letter of 29 August 1991, that calculations of potential SPOS adjustment costs are intricate and do not lend themselves readily to written explanation. In essence, we are proposing that any loss which the pensioner sustains, as a result of his basic pension being paid at a less favourable exchange rate than the one extant at the date of his retirement, should be taken into account when assessing the level of increases to be topped up under the SPOS arrangements.
7.
We have arrived at our estimates by aggregating the basic pensions bill for HMOCS officers by converting the individual pensions to sterling at each officer's retirement rate, and comparing this figure with the total basic pensions bill converted at HK$16 to £1. This gives a theoretical maximum liability of a little over £2m a year. However, certain limitations apply in the case of:-
(i)
(ii)
those recently-retired officers whose current SPOS entitlements are less than the losses they have incurred on their basic pension; and
those whose local Hong Kong increases already exceed their SPOS target figure.
After taking these limitations into account, it is clear that the actual cost to HMG would fall to below £2m a year. At
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CONFIDENTIAL