TNAG-2419-FCO40-3521-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 197

CONFIDENTIAL

[Extrack from Paper enclosed with foreign Secretary's meinte of

11 Febmay 1992]

servants who are already well paid by UK standards and given the assurances about security of pensions in the Joint

Declaration.

Comment: Departments agree that this option should be ruled out for financial, political and diplomatic reasons.

(c) Capitalisation

13. This scheme would cost HMG nothing, and would give HMOCS members the protection they seek. However capitalisation of pensions is precisely what local Hong Kong

civil servants are after. For the Hong Kong Government to

provide this for a small group of expatriates without

providing the same for the great majority of civil servants

would be highly divisive. HKG cannot afford to fund the

HK$120 billion needed for capitalising the whole Civil

Service Pension Scheme. The Governor's considered judgement

is that the Legislative Council would not be willing to vote

the money for a capitalisation of HMOCS pensions alone. The

Governor of Hong Kong has no reserve powers over finance.

In theory HMG could amend the Letters Patent to provide such

powers and then to direct the Governor to provide the funds;

alternatively HMG could over-ride the relevant provisions of

the Hong Kong Public Finance and Pensions Ordinace by a UK

Act of Parliament or Order in Council. But either of these

courses would provoke a constitutional and political crisis,

perhaps obliging HMG to impose direct rule.

14.

Chinese views on capitalisation of HMOCS pensions have not been tested. But the advice from Peking, Hong Kong and our Delegation to the JLG in Hong Kong is that the Chinese would be deeply suspicious of such proposals for Hong Kong to pay for disproportionately generous arrangements for expatriate civil servants and that it would be dangerous to

raise the idea with them. The Chinese have also shown

intense interest in the level of Hong Kong's fiscal reserves in 1997, cf the airport negotiations. They have expressed

NC3AAV/6

CONFIDENTIAL