CONFIDENTIAL
ANNEX C
COMPENSATION ARRANGEMENTS: BACKGROUND AND PROPOSALS
INTRODUCTION
1.
The historical background and HMG statements are set out in Annex A. Compensation schemes were normally introduced in two stages: a limited scheme, to cover compulsory retirement to facilitate the localisation of posts before independence; and a general scheme, offering HMOCS officials the option to retire at independence, or later, with immediate payment of pensions. Compensation for loss of career and other factors was given on an actuarial basis. The compensation was available to all HMOCS officers irrespective of whether they stayed on or not. It normally contained an inducement to stay on: those officers who did so were paid more compensation.
MINISTERIAL CONSIDERATION
2.
OD (K) agreed in 1985 that we should aim for arrangements whereby HMOCS officers in Hong Kong would be eligible for compensation from local revenue. In 1988, however, the then Foreign Secretary, Sir Geoffrey Howe, concluded that it would not be feasible to ask the Hong Kong Government to bear the costs because a locally financed scheme for these expatriates would be highly divisive within the Hong Kong civil service and politically untenable. The Hong Kong Government was in any case already making a substantial contribution to the total cost of compensation arising from the change of sovereignty by funding a limited compensation scheme (to facilitate localisation of senior civil service posts before 1997) and a special scheme for Special Branch officers at a combined cost of some £40 million.
3. Mr Major, then Chief Secretary to the Treasury, accepted that such a scheme should be drawn up and announced soon and that HMG should finance it (estimated cost between £10 m and £20 m in total). He declined to give any undertaking, so far ahead of the requirement, about how the cost of the scheme should be met in the PES terms: Ministers would wish to agree that in the light of the circumstances then prevailing. (Copies of correspondence attached).
NATURE OF THE COMPENSATION SCHEME
4.
The scheme proposed by Sir Geoffrey Howe was tailored to the particular circumstances of Hong Kong. A "traditional" form of General Compensation Scheme would have provided all HMOCS members still serving in Hong Kong in 1997 with an actuarially assessed sum (averaging about £180,000 at 1991 values), payable in one or more instalments, and immediate payment of pension to those who wish to retire in or after 1997. However, the Joint Declaration provides for a continuing career for these officers. Furthermore, traditional compensation would tend to encourage officers to leave, since it would permit them to obtain early payment of pension and full compensation, whether or not they remained in service. This would not take fully into account the 1960 White Paper requirement that schemes should provide an
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CONFIDENTIAL