SECRET
102371
MDHIA 874
5. THERE IS AN IMPORTANT ADDITIONAL POINT. AT A RATE OF 16:1 A STERLING PENSION SAFEGUARD ONLY AMOUNTS TO A REMOTE POTENTIAL CONTINGENT LIABILITY. FORWARD PROJECTIONS OF FUTURE EXCHANGE RATES
BELOW THIS LEVEL ARE SIMPLY UNREALISTIC. IN THESE CIRCUMSTANCES WE
CANNOT REALLY SEE HOW ANY TREASURY PROJECTIONS CAN SERVE AS A REALISTIC BASIS FOR TAKING DECISIONS. WE AGREE THAT THE FOREIGN SECRETARY SHOULD EMPHASISE THE NEED FOR A POLITICAL DECISION ON THE BASIS THAT A RATE OF 16:1 IS THE MINIMUM WHICH CAN HONOURABLY BE
PUT TO THE HMOCS ASSOCIATION IN AN EFFORT TO RESOLVE THE HMOCS
ISSUE.
SPOS
6. AN AMENDMENT TO SPOS IS REQUIRED BECAUSE THE PRESENT SYSTEM, WHERE EXCHANGE RATE GAINS ARE DEDUCTED BUT EXCHANGE LOSSES ARE NOT MADE UP, IS INEQUITABLE. HENCE THE PROPOSED ODA AMENDMENT. SPOS IS DESIGNED TO PROTECT ANNUAL PENSION INCREASES, WHEREAS THE STERLING PENSION SAFEGUARD IS NECESSARY TO PROTECT AGAINST A
CATASTROPHIC SITUATION WHERE THERE IS A MASSIVE DEVALUATION AND A VERY SIGNIFICANT EROSION OF AN OFFICER'S BASE PENSION. THE SPOS REVISION IS ALSO NECESSARY TO COVER EXISTING PENSIONERS. BOTH THE HMOCS ASSOCIATION AND OSPA ARE PUSHING VERY HARD FOR THIS SPOS REVISION. OUR ASSESSMENT IS THAT THEY WILL NOT ACCEPT ANY PACKAGE OF HMOCS PROPOSALS WHICH DOES NOT INCLUDE SPOS REVISION. WE UNDERSTAND THAT THE ODA REVISION WOULD ONLY COST ONE OR TWO MILLION POUNDS PER ANNUM AND SUGGEST THAT THE FOREIGN SECRETARY STRESS THE POLITICAL DIMENSION IN HIS MEETING WITH THE CHIEF SECRETARY.
GENERAL
7. OUR OVERALL VIEW IS THAT THESE IS NOW THE BASIS FOR AN AGREED GENERAL COMPENSATION SCHEME PROVIDED THAT TREASURY CAN BE BROUGHT TO ACCEPT A STERLING SAFEGUARD AT 16:1 AND REVISION OF SPOS. THE FOREIGN SECRETARY'S MEETING WITH THE CHIEF SECRETARY ON 29 JULY WILL PROVIDE THE OPPORTUNITY TO JUDGE WHETHER A POLITICAL DECISION ON THESE ISSUES CAN NOW BE MADE AND HENCE WHETHER FURTHER DISCUSSIONS WITH THE TREASURY AT OFFICIAL LEVEL ARE LIKELY TO BE PRODUCTIVE. THE GOVERNOR WOULD BE HAPPY TO GO OVER TACTICS WITH THE FOREIGN SECRETARY WHEN THEY MEET AT 9.30 AM ON THE 29TH.
PATTEN
YYYY