CONFIDENTIAL
COSTS
COMPENSATION
The
9. In 1988 we believed that up to 400 members of HMOCs might be eligible for compensation and we roughly estimated that the arrangements we proposed would cost between £10 million and £20 million. We now understand that as many as 660 officers could qualify, and in this unlikely event we estimate that the absolute maximum cost of the scheme will be £44 million. likely cost, based on the Hong Kong Government's judgement that 480 officers might stay until 1997, is estimated at between £20 million and £30 million. In order to limit our liability to future pay rises in Hong Kong, we could state that the compensation will be based on 1991 salary levels for the grade reached in 1997 and the average 1991 exchange rate, uprated by the movement in the UK Retail Price Index in future years.
STERLING SAFEGUARD
10.
The cost of a UK-financed sterling safeguard will depend on what exchange rate we agree for the safeguard and 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 salary levels and exchange rates, for the peak year of payments, 2011, would be £35 million. If the safeguard rate was 16:1, the amount would be £29 million. A decreasing commitment would persist until about 2040.
THE UK PENSION SUPPLEMENT (SPOS) REGULATIONS
11.
The UK Pension Increase Act was applied to overseas pensions to provide parity of treatment between certain overseas public servants and their UK counterparts. 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.
12.
For the vast majority of overseas pensioners these arrangements are satisfactory, because the basic pension in 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
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CONFIDENTIAL
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