CONFIDENTIAL
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(C) UK PENSION SUPPLEMENT (SPOS)
19. The final element of the package proposed by FCO/ODA is a change to the way in which we operate the UK pension
supplement (SPOS) regulations. Under the UK Pensions
(Increase) Act, (which provides for pensions to rise in line with UK inflation), Such supplements are payable to certain overseas service pensioners, supplementing their local pension supplements, in order to provide pasity of treatment with their UK counterparts. Almost all such overseas pensions are guaranteed in sterling terms. But for Hong Kong pensioners who are paid in a foreign currency not tied to sterling, the present arrangements can lead to abated
payments of UK supplements and a fall in overall income, inconsistent with the Act's purpose. The UK supplements are reduced if the Hong Kong dollar exchange rate rises above the level prevailing at the pensioner's date of retirment, but no account is taken of exchange rate falls. This is unfair and can result in hardship, particularly for those whose basic pension is low and who retired when the Hong Kong dollar was much stronger against sterling than it is today (it is the basic pension's sterling value at date of retirement which determines the UK equivalent pension
throughout).
20.
We propose that such pensioners should in future receive the same level of UK supplement as those paid to equivalent UK pensioners, subject as those paid to equivalent UK pensioners, subject to the total of their Hong Kong pension plus this UK supplement not exceeding in any one month the total pension plus supplement of their UK equivalent. This would not guarantee the purchasing power of the overall pension but it would remove the inequity of the present arrangements and satisfy many Hong Kong pensioners. The cost would be about £l m per annum at
current exchange rates or £2 m if the dollar fell to
HK$16 : £1 sterling.
NC3AAV/10
CONFIDENTIAL
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