DEFENSIVE POINTS
CONFIDENTIAL
WHY SHOULD HMG PAY?
HMG's duty is to ensure that suitable arrangements are made. Our starting point historically was that the local government should pay for the cost (though from the outset we paid 50% in almost all cases). Where the local government could not afford to pay or refused to do so, we stepped in. Politically impossible for Hong Kong to discriminate in favour of expatriates in civil service. So we must pay.
CHINESE INTEREST IN CAPITALISATION OF HMOCS PENSIONS?
- No. The Chinese have a completely different idea: they want HKG to "set aside" HK$15 billion from the reserves to help meet post-1997 pensions liabilities for all Hong Kong public servants. The idea of capitalising expatriates entitlements and handing over the money to HMG would confirm their worst fears. It could lead them to demand that HMG/HKG pay over to them extra funds to meet the accumulated pre-1997 pension entitlement of the 180,000 or so civil servants. They could threaten that the SARG would otherwise not pay these pensions.
WHY NOT A PRIVATE SCHEME TO SAFEGUARD PENSIONS?
I
- We spent a lot of time looking at the possibilities here. note that the Bank of England has advised that such a scheme may be feasible. However, Hong Kong Bank have stated that they do not believe it possible to provide an effective scheme without an acceptable external guarantee. That would mean HMG still had to take on a contingent liability. But such a scheme would only cover a relatively short period and would not meet the needs of many officers. I am satisfied that this option is not viable.
HONG KONG SALARIES INFLATED?
True that Hong Kong civil service salaries are high by UK standards, but Hong Kong has to pay the rate for the job and compete with the private sector. However, we have taken this factor into account in proposing a cap on compensation, and a sterling safeguard trigger which is 35% lower than the current exchange rate.
[If Chief Secretary proposes higher trigger level to compensate for higher salaries/pensions]: Willing to consider, provided principle of HMG-funded sterling safeguard accepted.
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