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are not likely to be very great. The option is politically very unattractive - its principles and practical impact would be difficult to defend; and it would tend to target HMG's help on those who have already retired, when the dollar was higher against the pound, to the detriment of those still serving whom we want to encourage to stay at least until 1997. You wilf wish to consider whether it is necessary to bother Ministers with this option (to show that we have not been idle since 2 July we could always include a list of discarded options as an annex?).
5. Option D. I am not sure whether, as well as GAD's calculation of the cash flow implications of greater or lesser commutation, you would also like them to calculate the theoretical costs of the option whereby HMG would safeguard only the non-commutable part of pension, leaving the maximum commutable element unprotected? (Relevant if a private sector scheme were to offer some protection of the commutable element for at least some officers?)
6.
Option Early Retirement. It is useful now to know that the effect of introducing an early retirement scheme in 1997 would probably be to reduce slightly the contingent liability. However all our advice is that there will no general right of early retirement, so I am inclined to think that we need not bother Ministers with this option (except perhaps with a sentence or two about it in any explanatory notes accompanying the options paper).
7. Ministers have now decided that there should be an OPD(K) meeting on 15 September to discuss Hong Kong constitutional questions, but we are clearly not yet in a position to propose discussion of HMOCS issues in that forum. However, we must make progress as fast as we can: we understand that unless we can say something new in Hong Kong before early October, a new hot-headed HMOCS Committee is likely to be voted in. If the Association becomes more militant and generates more publicity, it will cause more difficulties both with local civil servants, who remain dissatisfied about the security of their own pensions, and with China at a delicate moment for Mr Patten and for the Government's general Hong Kong strategy.
8.
We therefore look forward to hearing from you as soon as possible (particularly on whether you wish to invite GAD to start work on the graphs mentioned in para 3 above). I myself shall now bow out, in preparation for posting to Peking in November, and John Morris takes over from me. Thank you for your co-operation over the past months.
Your sincerely,
Nigel.
N J Cox
CC
D Fish Esq, ODA
D Rayson Esq, HM Treasury DJ Hughes Esq, GAD
woodfield.10sept/HMOCS/njc
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