CONFIDENTIAL
9. We must be prepared for criticism by the staff associations, the Overseas Service Pensioners Association and from members of Parliament here. They will no doubt claim that the proposed scheme fails to fulfil our responsibilities to HMOCS members in Hong Kong; that compensation and the right to retire early with immediate payment of pension have been granted in the case of all other British dependent territories; and that the consideration that is given to inducement to serve the SAR Government is out of all proportion to the consideration given to compensation for loss of career under the Crown.
10. In response, we could say that the proposed scheme had been designed to suit the particular circumstances of Hong Kong in a way which, to quote the 1960 White Paper, "reflects the interests of both the officers and the Government concerned". The Joint Declaration provides that expatriate officers may remain in service with terms and conditions no less favourable than before and the scheme adds a further incentive. Those who choose to give up their career in 1997 would receive a deferred pension at normal retirement age. Any enhancement to this, such as the immediate payment of pension, would be likely to encourage officers to leave Hong Kong service, as indeed it did in other territories where this provision applied.
COSTS
11. It is extremely difficult to calculate accurately how much the scheme proposed would cost. This would depend on:
(a) the number of HMOCS members in service in 1997 and on how long they remained in service after 1997;
(b) Hong Kong Civil Service Salary increases between now and 1997; and
(c) the exchange rates at the dates of payment.
The cost could be as high as £44 million (at current exchange rates) in the unlikely event that all eligible HMOCS officers were to remain until normal retirement age and all contract officers who had the option to transfer to permanent and pensionable terms chose to do so: and "bought back" all their previous service. Equally, if a high proportion of HMOCS officers were to leave in 1997 or shortly thereafter, the cost could be low (£4 m to £5 m). A figure midway between
these extremes, say £20-30 million, is probably the most likely. (By contrast a traditional compensation scheme would cost between £60 million and £205 million.)
12. One way of avoiding an open-ended commitment would be to state that the compensation was based on 1991 Hong Kong salary levels and would be paid in sterling at the average exchange rate for 1991. The value thus derived could then be uprated annually to take account of the movement of the RPI.
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CONFIDENTIAL