TNAG-2101-FCO40-2990-HM-Overseas-Civil-Service-(HMOCS)-policy-matters-1990 — Page 188

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CODE 18-77

Mr Kerby

CONFIDENTIAL

74

Reference.

FROM: D S FISH

(GTN 7 7243 3444)

DATE: 26 October 1990

cc Mr Paul, HK Dept/FCO

Mr Rew > Mr Rayson )

Treasury

HONG KONG PENSIONS: STERLING SAFEGUARDS

-

I attended a meeting on 24 October at the FCO to discuss the draft telegram attached to Alan Paul's letter of 17 October to Simon Rew at the Treasury copy attached. The meeting was chaired by Alan Paul and Simon Rew was accompanied by Don Rayson and Clive Brancen from the Treasury Superannuation Division.

2. It was not possible to persuade the Treasury that HMG had an obligation to ensure that the sterling value of Hong Kong pensions for HMOCS should be protected. Taking a narrow view of history the Treasury argued that the responsibility for the provision of a sterling safeguard rests with the overseas government. It is certainly true that Public Officers' Agreements negotiated at Independence elsewhere, provided for the payment of pensions by the newly independent government at a fixed rate; but it is also the case that this safeguard provision was inserted at the insistence of HMG in line with the commitments made to HMOCS officers in White Paper No 306. The Treasury do not accept that this or the fact that HMG have subsequently taken over the pre-independence element of HMOCS pensions, places HMG under any obligation to protect the pension of HMOCS officers in Hong Kong. I have to say that I have some sympathy with the argument that Hong Kong could afford to meet the cost of a sterling safeguard, and Ministers would clearly wish to take a

view on whether we could prevail on Hong Kong to pay up, as we did elsewhere.

3. The main subject of discussion at the meeting was the Treasury suggestion that pension entitlements should be capitalised and paid over to individuals who would make their own arrangements. This idea throws up a number of potential problems not least of which is the possible divisiveness of such an arrangement in Hong Kong. It would also be very expensive in 1984, the cost of capitalisation was expected to be £200 million in 1997, and salaries have increased considerably since then but the Treasury did indicate that it might be willing to help reduce the financial burden on Hong Kong, although only at the margins. The mass purchase of private annuities would also cause problems in connection with the calculation of UK pension supplements (SPOS) although the Treasury did ask whether the SPOS entitlement could also be capitalised. This would be possible I suppose but could have a knock-on effect for other SPOS recipients. Capitalisation might also cause legal problems for the Hong Kong Government but again these ought not to prove

insurmountable.

4. Despite the potential difficulties we do have an alternative and possibly practical proposal which we must put to Hong Kong. In the meantime we can but continue to deal with existing pensioners by pointing out that the pensions are solely the responsibiliy of Hong Kong.

1.

CONFIDENTIAL

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