options.1.HMOCS
MVS
CONFIDENTIAL
OPTION D: EXCHANGE RATE AT DATE OF RETIREMENT
HMG to underwrite pensions at an exchange rate related to
(and lower than) that prevailing on the date of each officer's retirement. As in Option C, the safeguard would be triggered when the prevailing HK dollar exchange rate falls below the trigger-point by a specified percentage. The percentages would be the same as those in Option C, ie from 25%-65%.
POTENTIAL ANNUAL COSTS: see graph and table attached
Advantages:
(a) Fairer to different generations of pensioners, particulary
those who retired when HKG-HMG salaries were similar and when the HK dollar was strong
(b) Likely to be slightly reduced contingent liability as
non-commutable element not covered, and also some saving on SPOS
Disadvantages:
(a) No consistency of treatment of the individual given that
exchange rates can vary rapidly over a short period. Date of retirement produces arbitrary results, eg pre and post Black Wednesday
(b) There could be great pressure from existing pensioners for
such a scheme to be introduced immediately
(c) No quantifiable guarantee to the individual
(d) Might be an inducement to officers to retire early so as
to guarantee the level of their safeguard
(e) Could involve real expenditure on date of introduction on
pensioners who retired at favourable HK dollar exchange rates
CONFIDENTIAL
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