ps/dr/5dm18.2
CONFIDENTIAL
During his recent visit the Governor explained to me why h thought it desirable to announce something in the near future C. the compensation/incentive question in advance of HMOCS officer: choosing in June whether to join new pensions arrangements. I fin: this argument persuasive where compensation is concerned. should, however, like my officials to discuss with yours thi details of your proposal to ensure that it is well-focussed on th objectives it is intended to achieve and is not unduly generous c costly.
6. The arguments for an
announcement on your propose: adjustments to the SPOS arrangements are different. There is r pressing need for such an announcement before the June deadlir. for opting between pensions schemes. We have deferred considerin the SPOS proposal hitherto because we have seen this as a. integral part of any decision on the sterling safeguards issue Clearly, if the HKG adopted our proposals to capitalise the valu of HMOCS pensions, your proposals on SPOS would become unnecessar for future pensioners. If you
accept that we should not c anything on the sterling safeguard issue, I would not object to a announcement on SPOS now.
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I have considered very carefully the options for dealing wit the sterling safeguards question which are set out in the paper t FCO officials. But I am not convinced that HMG should step in t provide a sterling safeguard on HK HMOCS pensions at UK taxpayers Our officials indicated to HKG and to HMOC representatives during their recent visit that there could be I. presumption that, if our proposals to capitalise HMOCS pensior. proved unacceptable to HKG, HMG would provide for sterlin safeguards at the UK taxpayers' expense. Indeed, our doing ≤ might suggest a lack of confidence on our part in Hong Kong
expense.
future.
8. I recognise the degree of inequity which exists in the way i which the SPOS arrangements operate at present in respect of HMOC pensioners. I am prepared to agree in principle to this bein remedied, thus providing a measure of protection for present an future HK HMOCS pensions against exchange rate fluctuation onc pensions are awarded, provided you accept that this is all tha HMG should do towards providing a sterling safeguard. Whateve further measures the HKG might decide to take, and they can affor to if they so wish, is up to them.
I have asked my officials to discuss with yours the detail. of your proposals for compensation and for
Assuming tha
9.
you agree the approach I suggest and that the details can b: sorted out in time, I should be content for Malcolm Caithness t: announce our decision, revised accordingly, when he visits Hon Kong in early March.
DAVID MELLOR
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