TNAG-2421-FCO40-3523-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 63

Mr Stone

CONFIDENTIAL

Reference.

fill (245

HKA 233/1

HMOCS STERLING SAFEGUARDS (AND SPOS)

1.

I record

My discussions on 6 April with Civil Service Branch covered some useful ground on sterling safeguards. the main points below.

Pensions Schemes Deadline

2.

Mr Waters was confident that, now that our Compensation Scheme was unveiled, HKG could hold to the 30 June deadline for opting between new and old pension schemes. A future sterling safeguard would apply to either scheme (though I assume that a decision not to offer any sterling safeguard might lead more people to opt for the scheme which would give them earlier access to the commutable sum?) We have since telegraphed our preference that the deadline be maintained.

SPOS

(I

3. CSB, from SCS downwards, were also clear that our next priority, after compensation, should be SPOS. There was no precedent for our providing a sterling safeguard before the change of sovereignty, and Cartland did not expect this. think linked exchange rates could be said to provide a sort of precedent; but I agree there is no justification for our applying a safeguard before 1 July 1997).

Margolis Report

4.

We were due to discuss this with Mr John Wilson (Finance Branch), but he was still on sick-leave. The Secretary for the Treasury had earlier described the Margolis Scheme as "loopy". I have passed you earlier minuting from Monetary Affairs Branch identifying some of the problems. MAB promise another minute soon on the final report, picking up the four points where Mr Margolis tried to brush away their objections by quoting "experts". Despite his earlier promise to do so, Mr Margolis had provided no models of the zero coupon 6-monthly roll-forward he had originally said was feasible. The Chartered Bank (SCB) and Wardleys had given HKG discouraging advice: SCB would be happy to manage the fund envisaged but not to advance loans on the strength of paper entitlements. At best the Margolis Scheme could help people due to retire in 5 or 10 years: so it would look like a scheme devised by senior officials for their own benefit. Once the administration had prepared its views, the Public Service Advisory Board would have to consider the Margolis ideas. But the expectation was that they were dead in the water.

CODE 18-77

KIPAJA SIM

CONFIDENTIAL