cst.ps/dr/8dm18.3
CONFIDENTIAL
5.
It seems to me in all the circumstances that it would be going too far to make provision, at potentially substantial expense to UK taxpayers, for measures to safeguard the sterling value of HMOCS pensions. Nor, as I understand it, is HMG under any legal obligation to make such provision:
6.
I have looked carefully at the 1954 and 1960 White Papers. Although they talk about pensions being safeguarded, they do not explain what the safeguard would imply. They certain do not indicate that they Government would provide sterling safeguard;
a
of course, I accept the Carr-Robertson assurance. But this relates to Government action in the event of a default. It is not the same thing as providing a sterling safeguard which would protect pensions in the event, for example, of a fall in the Hong Kong dollar;
we need to recognise that Hong Kong is different from other former dependent territories. It is much wealthier. HMOCS are better paid. The pension arrangements have been settled since 1984, so Hong Kong HMOCS have known where they stand on pension matters for a long time.
I am bound to continue to regard my proposal for a package comprising compensation/incentive payments, together with action on SPOS, as a generous package.
7.
In the circumstances, I suggest that HMG should revert to the HKG on the capitalisation option. It now appears all the more logical as well as affordable for the HKG to make provision, as I have suggested, for HK$2-5 billion (which could be phased over 5 years) in respect of HMOCS pensions. The HKG is already concerned about domestic pressures to make provision of some kind to support the pensions values of other HK civil servants, and could afford to do so (adapting perhaps the Chinese suggestion of earmarking HK$15 billion for pensions purposes within the reserve) in order to improve the political reception of the modest cost of provision for the HMOCS. The HKG's support for wider pensions provision might take the form of pump-priming, subsidising or underpinning a private sector scheme. Such a scheme seems increasingly likely to be practicable on a commercial basis, in the light of researches by the HKG's consultant, and, more recently, of our discussions with representatives of Barings.
8. I hope that you will agree that the recent HK Budget announcement has cast new light on this whole matter, and that the onus should be on the HKG to find a solution, by adopting capitalisation proposals as I should much prefer, or by some other
means.
9.
I am glad that you have found helpful the recent discussions between officials of the
compensation/incentive
scheme, representatives of Barings about safeguards. I am happy that my
details of the proposed and between officials and possible private sector pensions officials should continue to
No comments yet.
Private notes are available after approval.