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they have previously indicated that they recognise that the current arrangements are unfair to Hong Kong pensioners in the UK, difficult to defend, and contrary to the intention
of the relevant UK legislation).
6.
The Treasury have concentrated their fire on the sterling safeguard proposal, no doubt because this would be the most expensive aspect if there was a significant drop in the value of the Hong Kong dollar. They dispute that HMG has any legal obligation to provide such a safeguard and have insisted that other options be considered. These are discussed in the interdepartmental paper at Flag A. We are gradually narrowing down the range of options in official discussions, but it is slow going.
7.
The real Treasury aim is to shift the burden for providing a sterling safeguard on to the Hong Kong Government. The Governor's considered judgement is that this stands no chance of being acceptable to LegCo's Finance Committee or to the Chinese (our Ambassador in Peking agrees with the latter point). The Governor points out that it will be for the Hong Kong Government (and after 1997 the SAR Government) to pay the pensions of all retired officers, including HMOCS. But Hong Kong opinion would never agree to give a group of expatriate civil servants preferential treatment. And in any case, Hong Kong consider that compensating HMOCS officers for loss of the Secretary of State's protection, and safeguarding the sterling value of their pensions, is self-evidently an HMG responsibility.
8.
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We believe that the Treasury team (who visited Hong
in Kong for detailed discussions there at our expense December) are now coming to accept that their preferred option of full capitalisation of HMOCS pensions by the Hong Kong Government before 1997 is politically impossible.
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