DRAFT LETTER FOR SIGNATURE BY R A BURNS
JE Mortimer Esq
HM Treasury
Parliament Street
LONDON
SWIP 3AG
HONG KONG: COMPENSATION/INCENTIVE SCHEME AND PENSIONS ARRANGEMENTS
FOR HER MAJESTY'S OVERSEAS CIVIL SERVICE
1.
As promised in my letter of 6 November here are some
Thank you for your letter of 31 October.
on our calculations.
details STERLING SAFEGUARDS
further
2.
Our calculations of the potential annual costs of providing a sterling safeguard are fairly elementary. The essential principle, as I explained in paragraph 4(ii) of my letter of 15 October, is that we take the Hong Kong HMOCS pensions bill for any given year and convert it to sterling at whatever exchange rate the pensions are to be guaranteed. The cost of the safeguard to HMG will then be the difference between the sterling value of the pensions bill converted at the safeguarded rate, and the sterling value of the pensions at the prevailing rate of exchange.
3. If, for illustration, we take the safeguarded rate to be HK$ 16 to £1, and the Hong Kong Dollar were to become worthless, it would cost HMG about £10m a year to cover the current estimated HMOCS pensions bill which stands at some HK$ 160m a year. Using Hong Kong's projections of the number of HMOCS pensions which will be payable in future years, the pensions bill will peak in the year 2011 at around HK$ 244m a year. Using the same exchange rate assumptions, the cost of providing a safeguard in that year would be about £15m. We have asked Hong Kong to
to provide updated
1