TNAG-2101-FCO40-2990-HM-Overseas-Civil-Service-(HMOCS)-policy-matters-1990 — Page 196

HM Treasury

CONFIDENTIAL

LET MON

Parliament Street London SWIP 3AG Telephone 071-270

HKB 131

16

Ра

Alan Paul Esq

Hong Kong Department

Foreign and Commonwealth Office King Charles Street

London SW1

Dear Alan

HONG KONG HMOCS

24 Octakes 1990

re-

I said at this morning's meeting that I would let you have a draft of your telegram to Hong Kong. I suggest that the following should replace paragraph 2 to the end of the telegram:

"It seems

to

us

that the

announcement

of

a

compensation/incentive scheme may not achieve the objective of persuading HMOCS members to stay on in Hong Kong if their main concern is the possible erosion of the value of their pension which would result from any fall in the value of Hong Kong Dollar. It seems to us, therefore, that it would be unwise to proceed with a compensation/incentive scheme in isolation. We need to look at the various factors which will affect the willingness of HMOCS members to remain in Hong Kong and put together a coherent package of proposals which will achieve the objective of retaining HMOCS most cost ef- fectively.

The question of a possible Sterling safeguard for pensions will inevitably arise. The costs of any such safeguard could in theory be met either by the UK Government or the Hong Kong Government. I have to tell you, however, that any suggestion Sterling safeguard guaranteed by HMG would be strongly resisted in Whitehall. The public expenditure consequences would be open-ended, potentially enormous and repercussive. There would also be the question of the signal any such move

of

would give to the markets about HMG's confidence in the future of the Hong Kong economy. These concerns will not be easily overcome and it would be unrealistic to foster any presumption that Ministers would be prepared to agree to a Sterling safeguard either now or in the future.

A

In this context, we have been considering ways of dealing with potential problems on HMOCS pensions. We have sketched out one option

and consideration of it may lead to the identification of others

which we think has real attractions. It needs a good deal of further work and refinement but in outline it would involve individual HMOCS members being able to take the value of their accrued pension rights from the Hong Kong Government at any time between and 1997. The transfer value would be used to purchase a deferred annuity or personal pension from a private sector

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