CONFIDENTIAL
23 September 1992
Barrie Wiggham Esq CBE, JP
Secretary for the Civil Service
HONG KONG
BY FAX (ira Conce
Da
Barrie,
24/9 AM
HKA 233/1
Foreign & Commonwealth
Office
London SWIA 2AH
Telephone: 071-
HMOCS: PRIVATE SECTOR PENSION SAFEGUARDING OPTIONS
1.
Thank you for the copies of your exchange of letters with Mr Gray of the Hong Kong Bank (HKB). Mr Gray's reply is helpful in showing how unattractive the option put to him is. Our problem, however, is that we shall need to have, in writing, comments by an independent organisation (such as HKB) covering all the private sector options which the Treasury seem to think might be runners. Without this, the Treasury will simply say that we have not explored the position properly. We should therefore be grateful if you would take up Mr Gray's offer to quantify the known costs, as well as taking up the additional points set out below.
2. Perhaps I should first set out how we understand Mr Gray's letter. We believe the proposition is that, 5 years before retirement, an officer would take out a HK$ loan from HKB. The loan would be such that the commutable pension receivable in 5 years time, equals the face value of
the loan plus its accrued interest over 5 years. The loan size would in practice be worked out between actuaries and HKB. The officer then coverts his HK$ loan into a sterling 5 year deposit and places it with HKB.
3. We were a little puzzled why Mr Gray states in his point 1 that there would be an immediate exchange risk to the bank. We conclude this is because HKB would demand that the officer place his sterling deposit at HKB as collateral, incase of default on the receivable pension. This leads to two questions on the scheme:
(i) How workable would the scheme be with an external guarantee of payment in HK$ in the event of default?
(ii) Would the margin still be necessary with (i) above?
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