}
CONFIDENTIAL
some cases at present these UK pension supplements can amount to a substantial part of the total pension received, ie for those officers who have been retired for a long
period during which UK inflation and therefore UK pension increases have been running at a high level. Looking to 1997, however, if UK inflation and pension increases are
running at a level of say 4%, and the HK dollar were to
collapse within one or two years of an officer's retirement,
SPOS would protect only 4% or 8% of his pension. Thus to rely on SPOS as a way of addressing the sterling safeguard issue would neither fulfil our obligations nor would it permit the achievement of our objective of continuity in the Hong Kong public service through 1997: indeed it would be an incentive to some to retire early in order to start accumulating the UK pension supplements.
4.
In any case we remain committed by the assurances
originally given by Robert Carr and Reginald Prentice that
HMG would step in if there were to be default or if for any other reason in relation to the payment of their pensions
HMOCS officers were to find themselves in financial
difficulties. There is thus already a contingent liability: if we define and limit it now in the way we have proposed
we can also meet our wider obligations and contribute to
other vital national objectives.
5. The question of the likely Chinese attitude to a
proposal to capitalise HMOCS pensions before 1997 was
considered at paragraph 14 of the paper enclosed with my
minute of 11 February (extract enclosed for ease of
reference). This paper was the fruit of many weeks of discussion between departments. The paragraph explains why
this capitalisation proposal for certain expatriates is
fundamentally different from the Chinese notion of a set-
aside fund for all Hong Kong civil service pensions. The
Governor of Hong Kong, the Ambassador in Peking and the
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CONFIDENTIAL