CONFIDENTIAL
3 e) I regard the Treasury reference to the pension set aside as a red herring. The Chinese position is clearly aimed at securing an increase in the level of reserves at 1997, whereas capitalisation would result in depletion of those reserves.
3 f) I agree that Ministers must be clear about the extent to which 'no safeguard' would be a unique departure from past practice; and also that they should be left in no doubt about the political pressure which HMOCS officers past and present will endeavour to exert.
الار
3. On your paragraph 4, I very much doubt whether Sandra Brown would accept the unanimity which you claim for options e) and f). The Treasury claim not to be convinced on either issue. Given the weight of history and expectation, I cannot believe that Ministers would countenance the "no scheme" option. At the very least OSPA and the HMOCS Associations will press them on the principle and there must surely be limits to our ability to be evasive.
4.
I suspect that the "delay" option would probably produce pretty much the same reaction as "no scheme". But the Governor clearly has different
different ideas and the Treasury might well be attracted by the prospect of postponing a
of postponing a decision. As 1997 approaches they will be better able to judge what the future holds for Hong Kong and the extent of the contingent liability which a sterling safeguard would entail. The Treasury could also point out that pensions will be more or less stable in the period up to 1997 because of the HK$/US$ link. This is true of course, and would be a compelling argument for delay if it were not for the fact that we are expecting HMOCS officers to make decisions about their future without the fundamental guarantee on pensions values which was available to all their predecessors who served elsewhere in the Colonies.
5.
Elsewhere, of course, the guarantee took effect from the day of transfer of Sovereignty, but it did so in the context of fixed exchange rates. Only in Hong Kong do HMOCS pensioners have to run the risk of their basic pensions diminishing in value.
6. I now understand that you are coming increasingly to the view that we should follow the Governor's preference to depart from the package approach and press ahead with compensation alone. My views on this are well documented over a considerable period, but it is clearly for you to make the political judgement required. If, as I expect, the issue blows up both here and in Hong Kong, it should at least force everyone concerned to focus on what will be an immediate and very real problem; we have made little progress dealing with it in the abstract.
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D S FISH
Overseas Pensions Department/24 January 1992