TNAG-2268-FCO40-3267-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1991 — Page 31

CONFIDENTIAL

ANNEX C

THE OPERATION OF UK PENSION SUPPLEMENT REGULATIONS FOR

HONG KONG PENSIONERS

1. The UK pension supplement (SPOS) payable on overseas pensions is calculated by deducting the sterling value of any local (Hong Kong) increases from the UK increases that would have been paid on an equivalent UK pension. In addition, we treat as a local increase, any sterling bonus resulting from the basic pension being paid in any month at a more favourable rate than that used at an officer's retirement to calculate the basic sterling pension. However, the converse does not take place. If the basic pension is paid at less than the retirement rate, the shortfall is not topped-up directly, nor is the value of local increases adjusted to take account of the shortfall. As a result, the pensioner does not receive overall, the full sterling value of an equivalent UK pension. In short, we gain on the swings and the pensioners lose on the roundabouts, which makes the SPOS system very difficult to defend for those not on fixed-rate basic pensions.

2. We propose that we should be able to take into account. the depreciation in the value of the basic pension when quantifying local increases.

3. By way of illustration, if a basic Hong Kong pension of

HK$ 120,000 a year was awarded at retirement, and the

prevailing rate of exchange was then HK$10 to £1, the

pension would attract the same increases under the 1971

Pensions (Increase) Act as a UK public service pension of

£12,000 a year awarded on the same date. Let us assume,

the sake of mathematical simplicty that:

for

(a) both the Hong Kong pensioner and his UK counterpart

have received cumulative increases totalling 25% of their

basic pension entitlement since retirement, and

PICABD/1

CC

CONFIDENTIAL