CONFIDENTIAL
ii) STERLING SAFEGUARD
8.
The cost of a UK financed sterling safeguard will depend, crucially, on what exchange rate we agree for the safeguard and, of course, the value of the Hong Kong dollar over the coming years. There are no indications that the Hong Kong dollar will not remain strong or retain its link with the US dollar. It has never fallen below 16:£1 which was the fixed rate of exchange
prior to UK devaluation in 1967: if, as we recommend, this rate were adopted and the Hong Kong dollar maintained a value in line with exchange rate movements since 1967, the cost to HMG could
be nil. In the worst case scenario, if the Hong Kong dollar were
to become worthless and taking account of maximum HMOCS pension
liabilities, we estimate that the cost, at current prices and
exchange rates, for the peak year of payments, 2011, would be
£35 million per annum. If the safeguard rate was 16:1, the amount would be £29 million per annum. A decreasing commitment would persist until about 2040.
iii) THE UK PENSION SUPPLEMENT (SPOS) REGULATIONS
9.
The UK Pension Increase Act was applied to overseas pensions to provide parity of treatment between certain overseas public servants and their UK counterparts. The overall intention of the Act is to protect the value of pensions by increasing them in
line with movements of the UK Retail Price Index.
10. For the vast majority of overseas pensioners these
arrangements are satisfactory because the basic pension is guaranteed in sterling terms. But for Dependent Territory pensioners (virtually all from Hong Kong) who are paid at a current rate of exchange, the mechanics of SPOS can result in their overall income falling in a manner clearly not intended by
the Statute.
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