CONFIDENTIAL
ANNEX D(4)
STERLING SAFEGUARDS
Hypothecated Loan Scheme
1. The HKG has commissioned a consultant to consider a scheme for all civil servants, local and expatriate, whereby any officer could secure a loan from a commercial institution against a proportion of his earned pension entitlement. loan amount would be converted into foreign currency and managed independently by a reputable financial
institution or institutions. (Pensions law would not allow the money to be given directly to the individual until normal retirement age.)
2. Interest would of course have to be paid on the loan. It is difficult to predict what interest-rate financial institutions would require (assuming they were willing to operate the scheme). There is at present no long-term Hong Kong dollar debt market. The institutions would probably seek sovereign guarantees from China and/or HMG against default by the SAR Government.
3. The Consultant envisages that the loan advance would probably be limited to the commutable part of pension entitlement, ie 50% of the total. If so the risk would run for a maximum of about 25 years. If it were to cover the total pension, including payments due during retirement, the risk could run for a maximum of about 50 years.
4. It is impossible to predict what proportion of local and HMOCS officers would wish to take up such a scheme, without a clearer idea of feasibility, likely costs and investment return.
5.
The Treasury consider that the idea may be capable of adaptation to meet the concerns of HMOCS officers. The lump sum realised from the loan could be paid to HMG, which would then make a commitment to pay (a proportion of) pensions at a pre-determined rate. In order to make the scheme sufficiently attractive, it might be necessary for HMG to contribute financially.
6.
The Treasury cannot take forward detailed consideration of the proposal until they have studied the consultant's findings, expected in early March.
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CONFIDENTIAL