CONFIDENTIAL
4.
An announcement that HMG was putting in place a sterling safeguard could be interpreted as a lack of confidence in the Hong Kong dollar. But we can refute this by pointing out that such a move has been standard practice in former territories. In addition the pound has fluctuated widely against the US dollar and since it is natural for HMOCS members to retire to the UK, it is right that some certainty over their level of pensions be provided.
COSTS
5.
The cost of a sterling safeguard will depend on the
number of officers involved, the value of the Hong Kong
dollar in the years to come and the level set for the
safeguard.
6. It would be logical to pitch a sterling safeguard at the
average exchange rate over a number of years.
The average sterling to Hong Kong dollar exchange rate over the last 20
years has been 1:11.5. Over the last 30 years the average
is 1:12.8. The current rate is 1:13. However, we do not
believe that it would be appropriate to set a safeguard
figure more favourable than the current exchange rate, largely because Hong Kong public servants do well by UK Civil Service standards. A rate of 1:16 would be defensible
in Parliament and would not cost us any money in the
foreseeable future: the Hong Kong dollar has never sunk
below 1:16: it was fixed at 16:1 to the pound up to 1967.
Almost any rate other than the current one would be seen as
arbitrary. But we would defend our choice of safeguard on the grounds that it would be normal to take an exchange rate
just prior to the change of sovereignty. In this case 16:1
had been chosen well in advance to provide much needed
security for serving officers and to produce a measure of
comparability between overseas and UK pensions, the
fundamental principle underlying the Overseas Pension
PICABC/2
CONFIDENTIAL
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