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inequity and hardship cases. I also see difficulties about
Option E: our direct involvement as recipient of SAR pensions
would increase the risk of a default by the SAR Government if
relations were tense; and there would be endless complaints
if the Hong Kong dollar strengthens against sterling. There is no precedent for such an approach. HMG underwriting only
the non-commutable element of the pension would be attractive
only to those officers who will be retiring before 1997.
Others will point out that it is illogical and unjustified to
protect only a proportion of an officer's pension benefits.
The
6. As you wished, we looked again at the possibility of the
private sector helping to safeguard pensions. However, it is
clear that the private sector are not prepared to bear long-term Hong Kong exchange-rate and political risks. best they can offer is a scheme covering only the commutable
element of pensions and only for those retiring up to about
the year 2002. It also seems quite likely that the private
sector could not provide a workable scheme unless HMG agreed to give a guarantee against the risk of default by the SAR Government (ie we would still have a large contingent
liability), and even then they may not be able to offer it on
attractive terms. We have asked Hong Kong Bank to confirm
whether they could offer a scheme and, if so, the costs
involved. I hope to have this information, which we will copy
to your officials, before our meeting.
7. I therefore conclude that Option A a straightforward
Government commitment to pay compensating supplements if the Hong Kong dollar falls below the trigger-point is the right way forward.
Your officials have argued that if we decide to
A
go down this path, we should set the trigger-point far worse
than the current or historic exchange rate. I share your wish
to minimise our exposure, but we must put forward proposals
which are politically defensible and which we can sustain in
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