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pegged to the US dollar, the risk is of course that of the exchange rate between sterling and the US dollar. The Chinese strongly support the US dollar peg. And all the pressure on it in recent years has been in favour of an upward move of the Hong Kong dollar.)
11. If we can agree on the principle of this sterling safeguard, we hope that the Treasury and we will be able quickly to agree to resolve the outstanding problem for existing Hong Kong pensioners of the regulations made under the Pensions Act 1971 for payment of certain Uk pensions supplements (SPOS) : Mr Mellor accepted that the present arrangements were inequitable. The cost of improving them would be about (£1m) pa.
Early Retirement
12.
The 1960 White Paper states that at the time of constitutional change HMOCS officers should be allowed to retire; under the constant practice since, this has meant retirement with immediate payment of earned pension. Those who chose to stay on after the change also retained this right. Hong Kong HMOCS officers naturally want this right too, arguing that they will be more willing to stay on and see how things go if they know that they have this escape-route in case they ultimately find it impossible to continue to serve under the Special Administrative Region Government.
13.
Payment of pensions is a matter for Hong Kong's pensions law and pratice. Unfortunately it would be very difficult to go beyond existing law and practice and to provide HMOCS officers with such a right in any systematic way. It would be divisive in Hong Kong and, even more importantly, it might lead to the Chinese threatening that such pensions would not be paid after 1997. We must do all we can to minimize the risk of such a default.
14. We think we should tell HMOCS officers that we regret we cannot provide them with the assurance they seek, but that we shall keep the matter under review up to 1997 in the light of developments. In future discussions wth the Chinese we shall aim to agree arrangements, eg in the context of a faster localization programme, which meet the substance of HMOCS officers' concerns. This line will not satisfy the HMOCS officers in the short term, but we do not believe that we could yet have fruitful discussions with the Chinese. Meanwhile we could quietly encourage HKG to use their discretion to allow officers to retire early with pension before 1997, but this could become public and lead to a damaging Chinese reaction. We must therefore play this long; but we may not be out of the woods until we have solved it. quietly encourage the Hong Kong Government to look sympathetically at applications for early retirement, while monitoring the numbers concerned and Chinese reactions.
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