CONFIDENTIAL
b. the local pensions increase, to reflect increases in Hong Kong living costs, paid in dollars by the Hong Kong
Covernment;
3.
the supplementary pension for overseas service (SPOS),
This makes up any paid in sterling by the UK Government. shortfall between
and the sterling value of the increases paid on an equivalent UK public service pension.
c.
14. FCO and Treasury agree that the Government must guarantee pensions at some level against the possibility that problems in Hong Kong might lead to a substantial fall
fall in their sterling value or that the Chinese government refused to pay pensions. With luck, given the Chinese interest in maintaining stability and the value of the assets in Hong Kong, no significant payments would ever need to be made. But if the Hong Kong dollar
collapsed or the Chinese government defaulted on its obligations the payments would need to start immediately.
an using
age and assumed
15. Both the FCO and the Treasury would use the same methodology. The sterling value in 1992 of the pension
entitlement of each
each officer given his or her grade, her grade, length of service would be calculated, dollar: sterling exchange rate specified for the purpose. That would be uprated in line with the UK RPI through to 1997 to give a nominal safeguard baseline. If at any time thereafter the value of an officer's pension, when converted from Hong Kong dollars to sterling using the prevailing exchange rate, were to fall below that baseline, it would be supplemented by the Government to bring it back to the baseline.
16.
There
are
important applying this methodology.
differences in
the
proposals
for
17. The Treasury argue that, in judging what is fair, it is reasonable to take account of the differential between comparable Hong Kong and UK staff in their salary and pension entitlements. Under their proposal the safeguard would cut in only when the sterling value of a pension had fallen to the point where it was comparable to the equivalent UK pension. To achieve this:
The assumed dollar: sterling exchange rate would be set
at 26:1
calculated by the Government Actuary's Department as being the rate at which average Hong Kong
a.
CONFIDENTIAL