CONFIDENTIAL
475
052677
MDHOAN 8062
Hun 233/1
TOP COPY Q DIST?
la
CONFIDENTIAL
FM FCO
TO IMMEDIATE HONG KONG
TELNO 1144
OF 241425Z JUL 92
INFO ROUTINE PEKING, UKREP JLG HONG KONG
472
YOUR TELNO 1935: HMOCS:
1.
PRIVATE SECTOR PENSION OPTIONS
MANY THANKS FOR THIS FURTHER ADVICE.
IT HAS NOW EMERGED THAT BARINGS HAVE NEVER PROVIDED HM TREASURY WITH WRITTEN ADVICE. THE TREASURY HAVE INSTEAD SENT US
2.
A COPY OF A RECORD OF A MEETING WITH BARINGS ON 28 FEBRUARY (COPY BY FAX TO PS/GH), AT WHICH BARINGS TOOK A GENERALLY CAUTIOUS LINE ON THE POSSIBILITIES (SHARING MUCH OF YOUR OWN ADVISERS' SCEPTICISM ABOUT MARGOLIS'S IDEAS). HOWEVER THEY DID CONSIDER THAT THE PRIVATE SECTOR MIGHT BE WILLING TO PROVIDE A MORE MODEST FACILITY, PROVIDING LOANS NOW AGAINST THE COMMUTABLE ELEMENT OF PENSION (OR ADVANCING A DISCOUNTED PART OF THE SUM ULTIMATELY PAYABLE) FOR SAY UP TO 300 OFFICERS RETIRING BETWEEN NOW AND 2002. THEY GUESSED THAT THE RISK PREMIUM, PERHAPS INCLUDING A LIFE INSURANCE ELEMENT, MIGHT BE 5 PER CENT PER ANNUM ON TOP OF PREVAILING HONG KONG INTEREST RATES. THEY SUGGESTED THAT YOU MIGHT WISH TO DISCUSS THIS WITH LOCAL BANKS AND/OR INSURANCE COMPANIES.
3 =
OUR VIEW HAS ALWAYS BEEN THAT ANY SUCH SCHEME WOULD BE WHOLLY INADEQUATE TO MEET OUR HMOCS OBLIGATIONS AND OBJECTIVES. IT WOULD BE ONLY A SHORT-TERM EXPEDIENT AND A FINANCIALLY UNATTRACTIVE ONE (IF THE LOAN INTEREST-RATE (OR DISCOUNT RATE) WERE FIXED AT 12 PER CENT AND THE AVERAGE RETURN ON THE INVESTMENT WERE 8 PER CENT, THE OFFICER WOULD LOSE A SUBSTANTIAL PROPORTION OF HIS ENTITLEMENT OVER TEN YEARS - UNLESS THERE WERE TO BE SOME GOVERNMENT SUBSIDY).
4.
HOWEVER, IN THE PRESENT FINANCIAL/POLITICAL CLIMATE HERE, IT WILL BE NECESSARY FOR US TO INCLUDE SOME SUCH OPTION IN THE RANGE OF COSTED OPTIONS MINISTERS HAVE CHARGED US TO PREPARE (OUR TELNO 1078). (REHEARSING THE POLITICAL ARGUMENTS ABOUT THE UNACCEPTABILITY OF THE OPTION IS A LATER EXERCISE.) IN TREASURY EYES EVEN SUCH A LIMITED SCHEME MIGHT BE WORTH SUBSIDISING SINCE IT WOULD PUT A DEFINITE LIMIT ON THE STERLING SAFEGUARD CONTINGENT LIABILITY FOR THE PERIOD COVERED BY THE SCHEME.
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