CONFIDENTIAL
meet the commutable part of pensions (or a fraction of the commutable part of pensions). HKG could, for example, announce that, subject to fiscal conditions they would
transfer each year a figure of, say, HK $3 billion, to a
fund which would be separate from the fiscal reserves. The
fund could be constituted under the administration of
respected independent trustees. The objective would be to
accumulate a fund from which eventually (sometime after
1997) the commutable element of pensions would be paid:
meanwhile the trustees could be empowered to authorise
transfers to the general revenue in respect of pension
payments in certain specified circumstances (eg a defined
economic/revenue downturn). The fund could be authorised to
invest itself largely offshore to reassure civil servants
about the exchange value of their entitlements.
HK $15 billion would not go that far to meet the commutable
element of pensions. However, it could be used as a lever
with the Chinese. We could propose to the Chinese that they
should match the amount that HKG puts in pre-1997 with a
transfer of funds from the SARG land fund post-1997. Thus
if Hong Kong had managed to put in HK $15 billion by 1997,
the SARG would then put in a further HK $15 billion. At
that sort of level, the sums start to look reassuring.
The financial side of HKG are against any proposals to put aside reserves for pension purposes. However the Civil Service Branch has sympathy for the suggestion set out
above. These are clearly highly complex issues and it is
very difficult for us in London to gauge what is feasible,
both in political and financial terms. But our strong view
is that HKG is unwise to take the line that they can not do
anything to improve the pension position of civil servants,
while at the same time hoping to command their full loyalty
and hard work, and leaving HMG to pick up the tab for HMOCS.
JUDADG/5
CONFIDENTIAL