CONFIDENTIAL
7
Interest was traditionally payable on instalments, whether or not the officer stayed on after independence. However our proposal already includes uprating of payments in line with the UK RPI, so it seems reasonable to limit interest payments to those who choose to stay on, ie providing them with a modest incentive to do so. This would be in line with what we have told the Chinese. The scheme's costs have been calculated on the basis that all officers receive interest; if large numbers leave early, the scheme's costs will be lower.
8.
Phasing. It is convenient for us to be able to quote an annual cost over 5 or 6 years, rather than use a total. A 6-year phasing period was traditional, but because of interest payments this would be slightly more expensive than a 5-year phasing period. HMOCS officers would no doubt somewhat prefer 5 years, but we could let the Treasury choose between the two options.
9.
The HMOCS Association have accepted our proposed use of 1992 salary levels, uprated in line with the UK RPI, to calculate entitlements. This is helpful, given high Hong Kong inflation and salary increases.
10. The HMOCS Association wish us to use a more favourable exchange rate than the average 1991 rate, but the latter seems defensible (at HK$13.76: £1, it is already more favourable than the present rate of HK$14.2).
11. Promotion. Under previous schemes the compensation payable to an officer who chose to stay on after the constitutional change could be enhanced if the officer was then promoted; this provided an extra element of inducement to stay on. However we do not envisage any promotion after 30 June 1997 affecting the compensation payable to Hong Kong officers. The HMOCS Association have not asked for this; it would add unpredictably to costs; and it could involve us in arguments about whether the SARG was applying fair criteria for deciding on promotions.
12.
Contract officers first recruited before March 1985 who have retained the option to apply for pensionable terms and HMOCS membership will be unhappy about our sticking to the deadline of 30 June for applying to join HMOCS or to our restricting their right to buy back service for the purposes of calculating compensation entitlements. But their case is not strong: they have had a long time to decide whether to opt for HMOCS, and others had to decided before knowing what benefits would be payable to HMOCS members. It is reasonable to be able to buy back service for pensions purposes but not to enhance compensation payments. The contract officers are not organised and they enjoy no sympathy from the HMOCS Association, who see them as trying to have the best of all worlds. It is no longer one of our objectives to persuade as many contract officers as possible to opt for pensionable terms; given the
CONFIDENTIAL