нка 23311
L8 UC) 1993
263
File Note
HMOCS
1.
Mr Broadbent suggested that a possible solution to our difficulties over the sterling pension safeguard might be to ask HKG whether they would pay overseas officers and pensioners their pensions in sterling at the current rate of exchange. This would involve serving officers/pensioners being given a once and for all option to receive their pension in their own currency at a fixed rate ie for UK officers/pensioners it would be about HK$11.5:£1. This would provide those concerned with security against exchange rate fluctuations and would mean that HMG's pension safeguard (which could then be set at, say, HK$26: £1) would only be called in the event of a default by HKG/SARG.
2. To protect HKG against exposure, some of the revenue transferred to the Exchange Fund could be held in sterling
(purchased at the current exchange rate) equivalent to, say, 10 years of pension payments. Given the relatively small number of persons concerned this would not be a very large sum. This approach would not be inconsistent with the investment strategy of the Exchange Fund; and it would not breach any principle on hypothecation since HKG already proposed to do exactly that in setting up a HK$7billion pension reserve fund.
3. I said that this idea had been looked at a while ago, although the HK$7billion pension reserve fund was indeed a new feature. In the past HKG had rejected the idea as they pay all pensions in Hong Kong dollars and were not prepared to make special arrangements for overseas officers. To change the policy would attract criticism from LegCo and probably also from the Chinese. HKG regarded HMOCS as HMG's responsibility. The SARG could also reverse the policy in
1997.
I said we could suggest the idea again to Hong Kong if we are unable to get a satisfactory agreement/decision on the sterling pension safeguard rate.
4.
N.C.G. Whitney
Hong Kong Department
Cc Mr Morris
fn.hmocs.ADM
SLM