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(c) $22 is probably what the Treasury will suggest as reflecting the differential between Hong Kong and UK salaries. It is probably a fair reflection of the position. But comparisons of this kind are hard to sustain, since "average" figures conceal large fluctuations. It would be seen as a typical Treasury "compromise", and would not achieve our objectives. It would be hard to explain why an HMOCS officer should lose half his pension before HMG were prepared to step in. Setting the rate so low would not help anchor key HMOCS officers in the territory: many might leave well before 1997. Moreover public use of this figure could cause wider damage to confidence: it would suggest that HMG expected a big fall in the value of the Hong Kong dollar.
(d) $30 is likely to be the Treasury's initial proposal if they accept the principle of a sterling safeguard. They will argue that it takes into account the fact that HMOCS officers enjoy higher salaries and better pension earning entitlements than their UK counterparts. However, all colonial pensions accrued at a faster rate than UK public service pensions and we have never sought to penalise HMOCS officers for this through pension support arrangements. All the arguments against $22 apply in even stronger terms against $30.
CONCLUSION: The Treasury's wish to take into account the higher salaries paid in Hong Kong is understandable and, as a principle, not unreasonable. However, we need to bear in mind that this would be a departure from past practice and if it resulted in a safeguard level set too high (as is likely) would arouse strong opposition from HMOCS officers. We should aim to agree with the Treasury a figure which takes account of Treasury concerns and also the need to provide officers with a safeguard which they will regard as fair. Even a figure of $16 will be unpopular with officers, but, if we can achieve it, this figure should in the end be acceptable to them.
Option B:
The Treasury are likely to press the principle behind this option, although they recognize that it would be virtually impossible to implement. If they can secure our agreement to the principle, another option could be used to achieve the practical result (eg option A with a safeguard at $30 or $22:£1). We cannot ignore the fact that Hong Kong salaries are higher than their UK counterparts, but a pension safeguard based on UK pensions would be a significant departure from pensions practice. It is not the sort of safeguard officers expect and would be unacceptable to them. As for Option A, we need to find a solution which takes account of higher Hong Kong salaries and which the officers will also regard as fair.
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