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SITUATION PRE 1977
The Overseas Service (Pensions Supplement) Regulations 1972 stipulated that where a pension is awarded in a currency other than sterling the pension must first be converted into sterling before the supplement was calculated. The rate of exchange which had to be used was that obtained on 30th June each year.
As an example of how this worked: A HK pensioner retired in 1971, age over 55, on a pension of HK$10,000 p.a.
Sterling value of
Index Increase
SPOS payable from 1/12
pension
%
on 30/6
on
pension
SPOS in
Additional
Net
on SPOS
SPO:
issue
L
1972
688
9.9
68
68
1973
761
9.3
71
68
6
145
1974
823
16.5
135
145
24
304
1975
930
26.1
243
304
79
626
1976
1134
13.8
156
626
86
868
The effect of the above procedure, when there was a steadily appreciating HK$ rate of exchange, was that:
2.
1. The pensioner got a higher basic pension in sterling;
As SPOS was calculated each 30/6 on the current value of the
pension, this part of the calculation was based on an annually increasing figure;
3.
As the previous year's SPOS was also indexed, the effect of
(2) was compounded.
As a result from December 1976 the annual rate would have been £1134 pension + £868 SPOS = £2000; whereas the basic pension of £688 at date of retirement would have attracted £693 SPOS by December 1976 making a total of £1381. It was this effective double benefit which caused the trouble!
The Regulations laid down that when the overseas government paid pension increases the amount of those increases should be deducted from SPOS as HMG considers that the purpose of SPOS is to 'top-up' any local increases. The HKG has awarded the following pension increases: -
W.e.f.
%
1/4/69
1/4/70
1/4/71 1/4/72
5475
W.e.f. 1/4/73
%%
8
4
5
1/12/73 1/10/74 1/10/76
8
10
11
and further increases in subsequent years.
592 =)
As a result of these increases the 1971 pension of HK$10,000 (in the example) would have attracted HK$4,953 w.e.f. 1/10/76. This would nominally have been converted into sterling at the rate on 30/6/76. i.e. amount to £592, and so only the balance of SPOS (£868 £276 would have been payable from 1/12/76. All these SPOS calcula- tions were based on the exchange rate on 30 June and any monthly variation in the exchange rate, which would affect the actual sterling amount of pension and pension increase payable for that month was dis- regarded as far as SPOS was concerned.
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