TNAG-2417-FCO40-3519-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 252

ANNEX C4

Hypothecated Loan Scheme

1.

The HKG has commissioned a consultant to consider a scheme for any civil servant whereby an officer could secure a loan from a commercial institution against a proportion of his earned pension entitlement. The loan amount would be converted into foreign currency and managed independently by (a) reputable financial institution(s). (Pensions law would not allow the money to be given directly to the individual until normal retirement age.)

2. Key points to note in this proposal are:-

(a)

a loan is involved on which the officer would have to

pay interest. Management fees would also be charged. Given the conservative nature of pension fund investments, it is highly unlikely that the rate of return would be sufficient to maintain the real value of the sum;

If

(b) the loan rate institutions would charge is unknown.

the loan advance were limited to the earned commutable part of pension (25% or 50% of pension), the risks could run for up to about 25 years. If a higher proportion were to be covered, the risk could last up to 50 years something institutions would be most unlikely to take

(c)

3.

on;

the number of officers sufficiently concerned about the future of their pensions, and thus willing to take up such a scheme, is unknown. As it stands, it would certainly not be attractive to HMOCS officers who feel HMG has a commitment to safeguard their pensions.

The Treasury consider that the scheme could be capable of adaptation to meet concerns of HMOCS officers. The lump sum realised from the loan could be paid to HMG, which would then make a commitment to pay (a proportion of) pensions at a pre-determined rate. In order to make the scheme sufficiently attractive, HMG could contribute financially by, say, meeting a proportion of the loan interest or by guaranteeing a minimum rate of return on the invested sum.

4.

The Treasury cannot take forward detailed consideration of the proposal until they have had discussions with the consultant involved.

NFJABB

CONFIDENTIAL