CONFIDENTIAL
Option C:
HMG to under-write pensions at a discounted rate, eg HK $24 :
£1.
ANNUAL COST:
If HK dollar at or above this rate: Nil
If HK dollar became worthless (or if SARG defaulted):
in 1998: £ 6.96 m
in 2011: £ 11.04 m
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(NOTE: In all the above options, 2011 is shown an the year in which pensions are due to reach a peak before declining. that year the value of pensions is estimated at HK $ 265 m. Thus, under Option A, HMG would have to pay out £ (265/13.76) (265/20) m = £19.26 - £13.25 m = £ 6.01 m, if the HK dollar fell to HK $ 20: £ 1. (COMMENT: check $265m - perhaps omits 1991 pay-rise, ie should be c. $278m ?) In 1998 the value of pensions is estimated at HK $ 167 m. Both estimates are maxima: real figures are likely to be much lower.)
Option D
HKG/SARG to pay annual HMOCS pensions bill to HMG, which would pay individual pensions at a fixed rate as under Options A, B or C.
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ANNUAL COST:
Maxima would be as under Options A, B and C,
depending on the exchange-rate chosen, plus some extra administration costs; but these could be offset by savings in years when the Hong Kong dollar market value is higher than the safeguard rate.
Option E:
HMG to subsidise a private-sector scheme, providing an exchange-rate hedging mechanism over 10 years.
ANNUAL COST:
In 1993/94:
In 1996/97:
In 2004/05: In 2010/11: