TNAG-2099-FCO40-2988-HM-Overseas-Civil-Service-(HMOCS)-policy-matters-1990 — Page 82

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EXCHANGE RATES

5.

I am sure that you have been giving thought to the question of sterling safeguards. You are only too well aware of the importance which OSPA attach to it and it seems to me that we must alert Ministers to what HMOCS officers (past and present) feel is a fundamental area of insecurity, and one for which they feel HMG must ultimately accept responsibility.

6.

We are agreed that the future payment of pensions is secure. The Joint Declaration says as much, and we have already indicated to OSPA that HMG would honour its obligation to HMOCS officers in the event of a default by-the SAR Government. But these guarantees would mean little in the event of a collapse of the HK dollar. Similarly, incentive payments denominated in HK dollars would provide much less incentive if the-value of local currency fell dramatically. It seems clear, therefore, that pronouncements about a compensation/incentive scheme and the future security of pensions are unlikely to have the desired effect, unless accompanied by a measure of exchange rate assurance. We could suggest that a collapse of the currency is unlikely to happen but this would provide no reassurance, and indeed - would invite the response "in that case, what have you to lose by providing.

a safeguard?".

7.

There are no easy answers and it is extremely difficult to assess the possible financial consequences

of any

decision to offer a sterling safeguard. Also we have to consider what could be the wider implication of such a move. The offer of a sterling safeguard to HMOCS staff would be seen as divisive in a unified service, particularly to those beneficiaries of the changes to the Nationality Act. I have commissioned some work to try to assess the possible cost of a sterling safeguard for basic pensions for HMOCS officers. Clearly, the Treasury will expect to see comparisons with the benefits paid to UK public servants; we will try to provide this, although it is not always easy to decide what is the appropriate equivalent UK public servant. This work will take some time.

All this suggests that we should hold the long-mooted strategy meeting with Mr Burns before we go firm on a submission.

8.

брик

D S FISH

Overseas Pensions Department

28 June 1990

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