DEFENSIVE POINTS
CONFIDENTIAL
WHY SHOULD HMG PAY ?
HMG's duty is to ensure that arrangements are made. Our starting point was that the local government should pay for the cost (though from the outset we paid 50% in almost all cases). Where the local government could not afford to pay or refused to do so, we stepped in. HKG is unable to pay,
so we must do so.
CHINESE INTEREST IN CAPITALISATION ?
- No.The Chinese have a completely different idea: they want HKG to "set aside" HK$15 billion from the reserves to help meet post- 1997 pensions liabilities, because they are suspicious that HKG will otherwise squander the reserves or syphon off a part for HMG. The idea of capitalising these expatriate pension entitlements and handing over the money to HMG would stimulate their worst fears. It could lead them to demand that HMG/HKG pay over to them extra funds to meet the accumulated pre-1997 pension entitlement of the 150,000 or so civil servants. They could threaten that the SARG would otherwise not pay these pensions.
WHY NOT A PRIVATE SECTOR SCHEME TO SAFEGUARD PENSIONS? -We spent a lot of time looking at the possibilities here. It became clear that although the private sector might be able to operate a scheme providing loans against a part of future pensions entitlements and an exchange-rate hedge, this could only cover a relatively short period and limited sums. Only Governments can take on a long-term risk such as HMOCS pensions payable up to 2040 or beyond.
HONG KONG SALARIES INFLATED ?
-True that Administrative Service salaries are high by UK standards, but Hong Kong has to pay the rate for the job and compete with the private sector. If civil servants had thought that HMG might renege on its commitments to HMOCS they would have required even higher salaries. Most police salaries are now similar to UK equivalents. The use of a traditional cap on the revised compensation scheme will have a marked levelling-down effect.
WHAT DO HMOCS WORRIES MEAN FOR ECGD EXPOSURE ?
-No connection (except that if we renege on our commitments and provoke an exodus, Hong Kong will not be well administered). Hong Kong's economic prospects remain very encouraging: I cannot now see the South China economic boom being halted, and Hong Kong will continue to benefit- and to contribute- enormously. What HMOCS officers are worried
CONFIDENTIAL