CONFIDENTIAL
I. OPTIONS FOR HMG-FUNDED ARRANGEMENTS
STERLING SAFEGUARDS FOR PENSIONS
OPTION A: FIXED TRIGGER
HMG to underwrite pensions at fixed exchange rate, ie HMG would pay supplements if the Hong Kong dollar fell below a specified exchange rate. Possible exchange-rates are:
(a) HK $13.76 : £1
(b)
HK $16 : £1
(c)
HK $22 : £1
}
(d)
HK $30 £1
:
(likely HMOCS proposal: the 1991
average-exchange-rate)
(FCO/ODA proposal: the "historic"
rate ie when HK$ was pegged to sterling)
} (more reflective of average pay and } pension differentials)
POTENTIAL COST:
Present value, as at 1 October 1991, in UK
£ million when the exchange rate from 1 July 97 is assumed to be
HK$16 HK$20 HK$28
HK$ worthless
Trigger level (HK$)
HK$13.76
depreciating
and then
at 2% pa
13.76
53
118
192
377
87
16
0
65
139
324
43
22
0
0
51
236
7
30
0
0
173
1
Advantages:
(a)
(b)
(c)
(d)
(e)
Simple to administer
No cost to HMG unless HK$ falls below safeguard level Depending on chosen level of support, unlikely to result in pressure for pre-1997 introduction
Provides guarantee at pre-determined levels
Similar to existing safeguard arrangements for other colonial servants
options.1.
SLM
CONFIDENTIAL
2