CONFIDENTIAL
the Treasury believe that they have found another promising option. The Hong Kong Government had been considering a scheme (which would apply to all their civil servants) whereby those who wanted additional security about the future payment of their pension could take out a loan with a commercial institution against a part of their future pension entitlement, and arrange for this sum to be invested in offshore funds. The Treasury believe that some variant of this scheme might be attractive to HMOCS officers. We are very sceptical that it will be workable. It requires the banks to bear the long term political risks of a pensions default, and their charges are likely to be prohibitive. But we will not be able to take a final view on this until a Hong Kong Government consultant has finished a report on the idea and the Treasury have further digested
This could take several more months.
it.
9.
We remain confident that there is no workable
alternative to our proposal that HMG should take on a contingent liability to safeguard the pensions of HMOCS officers (the cost of this could be nothing if the Hong Kong dollar remains reasonably strong: in the worst case of the currency becoming worthless, the cost would be about £15 million per annum in the year of peak expenditure, but some liability would continue for as long as pensioners survived). But our assumption has been that as long as the feasibility of alternative approaches have not been finally determined, it would not be possible to bring the sterling safeguard issues to a decisive round of Ministerial discussion. The Treasury could always call for more work to be done. We have therefore been trying to clear as much of the ground as possible at official level. But the Governor's comments indicate that some announcement is
needed on a shorter timing.
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