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. For officers retiring after 1997, the exchange rate would be that prevailing on 30 June 1997. 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 could be the same or similar to those in Option C.
POTENTIAL COST:
Present value, as at 1 October 1991, in UK£ million of the estimated costs of options D: when the exchange rate from 1 July 1997 is assumed to be
HK$16 HK$20 HK$28
HK$ worthless
Trigger level % [1]
0
74
139
213
398
25
9
57
131
316
50
0
11
78
261
75
0
41
224
HK$13.76
and then depreciating at 2% pa
108
38
12
4
Note: [1] % above rate at retirement, or %% above HK$13.76
Advantages
(a)
Fairer to different generations of pensioners, particularly those who retired when HKG-HMG salaries were similar and when the HK dollar was strong
(b) Would reduce contingent liability to the extent that it
would encourage officers to retire early to guarantee the level of their safeguard
Disadvantages
(a)
(b)
흐흐흐
(e)
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
There could be great pressure from existing pensioners for such a scheme to be introduced immediately
No quantifiable guarantee to the individual
Might be an inducement to officers to retire early so as to guarantee the level of their safeguard
Could involve real expenditure on date of introduction on pensioners who retired at favourable HK dollar exchange
rates
options.1.
SLM
CONFIDENTIAL
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