ling at the current rate of exchange for both the basic pension and the pension increases. This was the position in 1972. If this is done, the pensioner will get no less than what is neces- sary to maintain the original purchasing power of the pension in all exchange rate situations. SPOS would not be paid if the pensioner gets more.
The Effect of the 1977 Regulations on Other Pensions
Under the 1977 Regulations, the Hong Kong pensioner with only his Hong Kong pension will, irrespective of its overall sterling value, receive no benefit from SPOS as long as infla- tion is higher in Hong Kong than in the UK, because HK increases will always be higher than UK increases. Hong Kong pensioners who have other pensions paid by the ODA will be even worse off. This is because any false surplus derived from converting the basic pen- sion into sterling at a historical exchange rate will be used to reduce the SPOS on those other pensions, even though the value of the aggregated pensions may have been below their origi- nal sterling purchasing power. On the other hand, if UK inflation is higher than Hong Kong's, the pensioner would get back the intended SPOS payments.
Since the devaluation of sterling in September 1992, the Hong Kong pensioner resident in the UK receives a genuine exchange rate surplus which can legitimately be used to reduce the SPOS on other pensions. This may be unfair to pensioners who are not UK residents because they suffer a reduction of SPOS without the benefit of the exchange rate surplus. However, this anomaly does not conflict with the intentions of the Act.
Conclusions
As a result of the correspondence I have had with the ODA, they have on at least two occasions obtained a legal opinion about their liability under the Act to supplement the over- seas pension as a whole and not just the pension increases. From these opinions the ODA have concluded that what they are doing is not in conflict with the Act.
The problem is that there are some relevant sections in the Act which require judicial interpretation but the courts, which would not have access to the original unpublished policy documents upon which the Act was based, would have to rely mainly, but not exclusively, upon the literal or reasonable meaning of the words of the Act. Furthermore, the Act does not say anything about how overseas pensions should be converted into sterling. It was intended, according to Hansard, that the regulations would cover that and it was in the draft- ing of the exchange rate provisions of the regulations that the conflict with the Act's original intentions arose. My own view is that pensioners would have a fighting chance of winning a court case, either through a Judicial Review or more simple court procedures, but there would be a risk and the consequent cost of failure. This remains an option of last resort.
If the ODA were really interested in finding out what were the original intentions of the Pensions (Increase) Act 1971, there was no need for them to go to their lawyers. They should have consulted the original policy documents on which the Act was based and I feel sure that this would have confirmed that they are not following the intended policy. I believe that the Ministry Guide, referred to in the third paragraph above, was compiled from these policy documents as were the other agreements and statements that I have quoted. In any case, it should have been obvious that the basic pension and the pension increases are interrelated and to treat them separately for SPOS purposes does not make sense because higher increases are intended to compensate for the depreciated value of the basic pensions which is reflected in the exchange rate.
I believe that much more pressure needs to be put on the British Government to honour its commitments under the Act. They should be asked to make available the policy documents on which the Act was based and give a full explanation of the various contradictions in
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the way they have been exercising their responsibilities over pension supplement matters or otherwise come clean and admit publicly that they have reneged on the earlier commitments.
If the British Government fails to honour its commitments, the Hong Kong Government could be approached to see whether they would be willing to guarantee the sterling value of the Hong Kong basic pension (as other former overseas territories have done under Public Officers' Agreements) and to make up any shortfall from the pension increases that the Hong Kong Government would otherwise pay. This should be acceptable to the Hong Kong Government as they would not have to pay any more; they would merely change the category of the payments. However, the British Government would be required under the 1977 Regulations to make up the consequent sterling shortfall in the Hong Kong increase payments. In this way the original intentions of the Pensions (Increase) Act 1971 would be fulfilled.
EDITORIAL NOTE
The foregoing article by Mr. R. B. Blanche, who served in the Colonial Audit Service in Tanganyika, Sierra Leone and Hong Kong, retiring in 1989 as Assistant Director of Audit in Hong Kong, is published at his request.
The Council of OSPA fully supports the main thrust of Mr. Blanche's argument that the intention of the Pensions (Increase) Act 1971 was to pay pensions increases so as to maintain the purchasing power of pensions as at the time of award; and this is the situa- tion for all British public service pensioners whose pensions are awarded in pounds and pence. This is also the position, through the SPOS regulations, for overseas pensioners whose pensions have been fixed in sterling. The difficulty arises when, as in the case of Hong Kong pensioners, their pensions are awarded and paid in the local currency (i.e. HK$) which has a floating exchange rate with sterling.
The British Government's view, as expressed by the ODA, is that pensions increases awarded under the 1971 Act to overseas pensioners are only designed to "top-up" any increases as awarded by the overseas government (e.g. Hong Kong), so that the aggre- gate of the overseas increase and any balance of SPOS is not less than the pension increase which would be received by a British public service pensioner retiring at the same time and on the same pension. The effect of this policy is that any loss in the sterling value of the basic pension through exchange rate fluctuation is not made up through the UK pension increase (i.e. SPOS).
OSPA has for many years made representations to the British Government about this loss in the sterling value of basic pensions, and is continuing to do so. We have used some of the arguments in this article, and also other cogent ones; but we do not fully accept some of the points which Mr. Blanche has made.
However, it is helpful for another mind to be brought to bear on this situation so as to see whether further pressure through renewed arguments can be brought to bear on the British Government in advance of decision being reached on the issues of a general compensation scheme for members of HMOCS, of post-1997 safeguards for the value of HK overseas pensions, and this issue of maintaining through SPOS the purchasing power of overseas pensions currently in issue.
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