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 very 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 Increase Act.
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