CONFIDENTIAL
The Treasury's own proposal that Hong Kong should capitalise the value of HMOCS pensions and make this sum over to HMG, who would pay the pensions. The Treasury returned convinced that this was financially affordable in
Hong Kong and would be the neatest solution. But the
Governor considers that they have not taken sufficient notice of the two key political objections put to them in Hong Kong, ie, that for HKG to fund the scheme for HMOCS officers alone would be highly divisive; and that LegCo would not vote the money for it. There is also the point that the Chinese would almost certainly object; although the Treasury believe that the Chinese position is unproven and might be overcome. We have made clear to the Treasury that we would oppose an informal sounding out of the Chinese, unless Ministers had decided that they wished to pursue this option, even in the face of opposition in Hong Kong;
The Treasury also came across while in Hong Kong an alternative approach to providing HMOCS officers with certainty that (a portion of) their pensions would be paid. They learned of an idea, on which HKG have commissioned a
consultant's report, whereby Hong Kong civil servants could take out a commercial loan using the lump-sum element of their future pension as security. HKG are doubtful that this scheme would prove attractive for most civil servants
(given interest charges, management fees, etc). But the Treasury saw the possibility of adapting it so that while it remained open to all Hong Kong civil servants (hence avoiding divisiveness) HMG might agree to a top-up arrangement in respect of HMOCS officers. The Treasury are still considering how much this would cost in order to make
it feasible. They will be meeting Hong Kong's consultant (Richard Margolis) on 21 January to pursue the idea;
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CONFIDENTIAL
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