CONFIDENTIAL
117047
MDHIAN 6563
I.E. COMPENSATION FOR THE LOSS OF THE SECRETARY OF STATE'S PROTECTION AND STERLING SAFEGUARDS FOR PENSIONS. THE HMOCS REPRESENTATIVES POINT OUT THAT THEY HAD BEEN SEEKING ASSURANCES IN THIS REGARD SINCE 1985 AND NEEDED ANSWERS SOON IF THE ISSUE WAS TO BE KEPT OUT OF THE PUBLIC ARENA. WE ARE FAXING TO RICKETTS (HKD) COPIES OF THE ASSOCIATIONS' SPEAKING NOTES.
8. DURING THE COURSE OF THEIR VISIT, THE TEAM LEARNT OF AN IDEA PUT TO US TO ALLOW THE COMMUTABLE PART OF PENSIONS TO BE HYPOTHECATED TO GUARANTEE LOANS TO INDIVIDUAL OFFICERS FROM FINANCIAL INSTITUTIONS. THESE LOANS COULD BE DRAWN UPON WHEN AN OFFICER REACHED RETIREMENT AGE. THE POSSIBILITY OF SUCH A SCHEME IS BEING EXAMINED BY A CONSULTANT IN THE LIGHT OF LOCAL STAFF'S CONCERNS ABOUT THE SECURITY OF PENSIONS. THE TEAM FELT THAT THIS MIGHT PROVIDE A FOUNDATION ON WHICH THEY COULD BUILD SPECIAL ARRANGEMENTS FOR SAFE-GUARDING HMOCS PENSIONS. IN OUR VIEW, HOWEVER, THIS IS ALMOST CERTAIN TO BE A BLIND ALLEY. STAFF OPTING FOR THE SCHEME WOULD HAVE TO PAY ALL LOAN MANAGEMENT AND INTEREST CHARGES, WHICH WOULD MAKE THE SCHEME HIGHLY UNATTRACTIVE. ALSO, INITIAL INDICATIONS ARE THAT FINANCIAL INSTITUTIONS MAY NOT REGARD THE FUTURE PAYMENT OF A COMMUTED PENSION AS AN ADEQUATE GUARANTEE OF THE LOANS. IN ANY EVENT, THE SCHEME WOULD NOT ADDRESS THE PROBLEM OF STERLING SAFEGUARDS FOR THE INDIVIDUALS RESIDUAL MONTHLY PENSION. WE HAVE NEVERTHELESS AGREED TO MAKE ANY INFORMATION EMERGING FROM THE CONSULTANCY AVAILABLE TO THE TEAM.
WAY FORWARD
9. IN ALL OTHER DEPENDANT TERRITORIES, HMG HAS MADE APPROPRIATE ARRANGEMENTS FOR COMPENSATION AND STERLING SAFEGUARDS. IF THE EXPECTATIONS OF THE HK HMOCS MEMBERS (THEIR RIGHTS, AS THEY WOULD SEE IT) ARE TO BE MET, THIS CAN ONLY BE DONE BY HMG. DOING SO WILL INVOLVE SOME ACTUAL COST IN THE CASE OF COMPENSATION ARRANGEMENTS, AND ACCEPTANCE OF A POTENTIAL LIABILITY IN THE CASE OF STERLING SAFEGUARDS. GIVEN THE SITUATION IN WHICH HONG KONG FINDS ITSELF, IT IS NOT POSSIBLE FOR THE HONG KONG GOVERNMENT TO BE A PART PAYMASTER OF THESE ARRANGEMENTS. THESE POINTS HAVE BEEN PUT CLEARLY AND OBJECTIVELY TO THE WHITEHALL TEAM, BUT WE ARE NOT YET CLEAR HOW MUCH IMPACT THEY HAVE MADE.
10. OUR PROPOSAL WHEREBY HMG WOULD TAKE OVER THE PAYMENT OF HMOCS PENSIONS, AND HKG WOULD PAY HMG ON AN ONGOING BASIS THE PENSIONS THAT WE WOULD HAVE PAID TO HMOCS OFFICERS IN HK DOLLARS, REMAINS ON THE TABLE. BUT WE SHOULD BEAR IN MIND THAT THERE IS A CHINA ANGLE TO THIS, IN THAT POST 1997 THE PAYMENTS WOULD HAVE TO
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