CONFIDENTIAL
OPTION C: AVERAGE EXCHANGE RATE OVER EXTENDED PERIOD
HMG to underwrite pensions based on (but lower than) the average HK dollar-sterling exchange rate over an extended period (eg. 3 years) up to 30 June 1997. The safeguard would be triggered when the prevailing HK dollar - sterling exchange rate falls below the average rate by a specified percentage. Possible percentages might be:
(a) 25% below average rate eg. at average rate of $12:£1, the safeguard would activate when the rate fell to $15:£1
(b) 33% below average rate
(c) 50% below average rate
(d) 65% below average rate
POTENTIAL ANNUAL COSTS: see graphs attached
Advantages:
(a) Would relate to circumstances closer to 1997 when the
safeguard would come into effect
(b) No likelihood of HMG incurring any liability for some time
after 1997
(c) Simple to administer
Disadvantages:
(a) Provides no reassurance to those who need it now (b) HMG would be taking a punt on the exchange rate - if the
HK dollar was very strong over the extended period to 1997 and depreciated substantially thereafter, HMG could incur significant costs
(c) Officers may press for the safeguard to be based on HK
salary levels prevailing nearer to 1997
(d) Depending on chosen level of support, may be opposed by
some serving officers as not taking account of
differentials between well paid grades (Admin Officers, Judges) and not to well paid (Police)
options.1.HMOCS
TTV'S
CONFIDENTIAL
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