cst.ps/dr/5dm18.2
CONFIDENTIAL
5. During his recent visit the Governor explained to me why he thought it desirable to announce something in the near future on the compensation/incentive question in advance of HMOCS officers choosing in June whether to join new pensions arrangements. I find this argument persuasive where compensation is concerned. I should, however, like my officials to discuss with yours the details of your proposal to ensure that it is well-focussed on the objectives it is intended to achieve and is not unduly generous or costly.
6. The arguments for an announcement on your proposed adjustments to the SPOS arrangements are different. There is no pressing need for such an announcement before the June deadline for opting between pensions schemes. We have deferred considering the SPOS proposal hitherto because we have seen this as an integral part of any decision on the sterling safeguards issue. Clearly, if the HKG adopted our proposals to capitalise the value of HMOCS pensions, your proposals on SPUS would become unnecessary for future pensioners. If you accept that we should not do anything on the sterling safeguard issue, I would not object to an announcement on SPOS now.
7. I have considered very carefully the options for dealing with the sterling safeguards question which are set out in the paper by FCO officials. But I am not convinced that HMG should step in to provide a sterling safeguard on HK HMOCS pensions at UK taxpayers' expense.
Our officials indicated to HKG and to HMOCS representatives during their recent visit that there could be no presumption that, if our proposals to capitalise HMOCS pensions proved unacceptable to HKG, HMG would provide for sterling safeguards at the UK taxpayers' expense. Indeed, our doing so might suggest a lack of confidence on our part in Hong Kong's
future.
8. I recognise the degree of inequity which exists in the way in which the SPOS arrangements operate at present in respect of HMOCS pensioners. I am prepared to agree in principle to this being remedied, thus providing a measure of protection for present and future HK HMOCS pensions against exchange rate fluctuation once pensions are awarded, provided you accept that this is all that HMG should do towards providing a sterling safeguard. Whatever further measures the HKG might decide to take, and they can afford to if they so wish, is up to them.
9.
I have asked my officials to discuss with yours the details of your proposals for compensation and for SPOS. Assuming that you agree the approach I suggest and that the details can be sorted out in time, I should be content for Malcolm Caithness to announce our decision, revised accordingly, when he visits Hong Kong in early March.
You
DAVID MELLOR
CONFIDENTIAL