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apparently washing its hands of it. Mr Wiggham bridled a little at the last phrase! But he seemed to take the point. I also said that I did not see why HKG should not inject some new money into this operation: HMG were expected to take on a contingent liability of several hundred million pounds. And the Chinese wanted HKG to do something. I hoped HKG would
deploy all its ingenuity.
9.
Could I please see again the figures we gave the Chinese at JLG XX(?) for yearly forecast of HKG pension liabilities. Mr Margolis's HK $20bn figure is not very relevant. I think HKG calculated they would need to set aside HK $120bn in order to earn the annual pension liability, but I suspect that that calculation was deliberately devised so as to reach a frigheningly large sum. Can you make any guess of what HKG could reasonably put each year into building up a pensions fund? $10bn? Can you see a way of giving individual pensioners a lien on the fund's foreign currency earnings without implying Government lack of confidence in the US $ link?
Sterling Safeguards
10.
Mr Waters was willing to discuss ways of reducing the potential cost of a sterling safeguard, accepting that although Hong Kong salaries had always been the highest in HMOCS, they had never been as high as now. In other territories officers' "notional pensionable emoluments" reflected relativities between actual pay (including the inducement element) and UK pay. It might be open to us:
(a) to provide a safeguard for only part of the pension, ie of a notional pension related to comparable UK officials' salaries, or (using the compensation scheme precedent) related to the terminal rank-point's 1992 salary, upgraded in line with the UK RPI. (How to define comparable UK officials? Does SPOS do this, or is the "UK equivalent" for SPOS simply the person earning the same pension as the Hong Kong pensioner on date of retirement at the then exchange rate?)
(b) to move away from the concept of a trigger point ($16 to £1, in our proposal) when HMG would make up the difference and to say from the outset that HMG would convert the pensions into sterling at a fixed rate, say $15 to £1. Participation in such a scheme would have to be voluntary, but the Treasury could hope to gain at present exchange-rates and if the Hong Kong dollar strengthens against sterling. (Mr Waters said there was a precedent in that Hong Kong's pension legislation before 1948 had provided for pensions to be paid at a fixed rate of $16 to £1).
11.
These seem to me interesting ideas, with (b) particularly attractive. (Past experience suggests, however, that it would be fatal to expose such possible "compromises" to the Treasury until a much later stage: our next step is,
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