CONFIDENTIAL
would provoke a huge row with the Chinese, who would see this as British "asset stripping".
18. With regard to SPOS, Hong Kong pensioners are in a uniquely exposed position, compared to their counterparts from other territories. Because their pensions are not linkied to sterling, their best value in sterling terms can fluctuate wildly. In recent years this fluctuation has been all downwards. It is becoming impossible to justify the current position and steps need to be taken to put the regulations on a more equitable footing. The financing of SPOS has always been our responsibility and we propose that the new arrangements should commence on 1 April 1992.
CONCLUSION
19.
We hope that you will be able to let us have your early agreement that we should now tackle this problem in the way I have outlined. As with the compensation scheme, we propose that the sterling safeguard and the change to the SPOS arrangements should be handled by ODA with the costs being borne on the Superannuation Vote. Mr Major accepted in 1988 that we could not justify the diversion of Aid Vote funds to a territory not qualifying for aid but left it to a future government to decide how to deal with the funding in PES terms. We would not expect an early call on HMG to provide a sterling safeguard, but there would need to be an addition to the Superannuation Vote for 1992-93 to finance the revision to the SPOS calculations.
Yours sincerely,
Nox.
N J Cox
PICABA/5
CONFIDENTIAL
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