HOW THE TREASURY'S PROPOSED PENSION PROTECTION MECHANISM
WOULD WORK
Example
1. Officer retires in 1997 at grade 'x'.
2.
Compute officers notional pension based on salary level of
grade 'x' in 1992, his length of service etc.
3. Divide the notional pension by the safeguard rate, and increase the resulting sum by UK RPI. This gives the level at which the officer's pension will be protected.
(note: as wage increases in Hong Kong up to 1997 are likely to average 10% ie much higher than UK RPI, the officer's actual pension in 1997 is likely to be far higher than his notional
pension. Thus, for HMG to incur any liability, the exchange
rate would have to fall further than the rate chosen for the
safeguard).
Illustration
Officer A retires in 1997 at grade 'x'. His 1991 salary was HK$X pa, which gives him a notional pension of, say,
HK$160,000 pa. The safeguard rate is HK$16: £1 which means that
his protected pension level is £10,000. The figure of £10,000 is then uprated in line with UK RPI so, for example, in 1997 it
might be about £12,000 (assuming UK RPI at 3.00%).
However, in reality officer A enjoyed salary increases of 10%
pa. His actual pension on retirement was therefore HK$280,000
which at current exchange rates would be £23,000pa. Thus, for
the safeguard to bite for officer A the exchange rate would have
to fall to about HK$23: £1.
prop.mech.ADM
SLM