CONFIDENTIAL
Option C:
HMG to under-write pensions at a discounted rate, eg HK $24 : £1.
ANNUAL COST:
If HK dollar at or above this rate: Nil
If HK dollar became worthless (or if SARG defaulted):
in 1998: £ 7.0 m
in 2011: £ 11.7 m
=
£20.35
NOTE: In all the above options, 2011 is shown as the year in which pensions are due to reach a peak before declining. In that year the value of pensions is estimated at HK $ 280 m. Thus, under Option A, HMG would have to pay out £ (280/13.76) - (280/20) m
£14.00 m = £ 6.35 m, if the HK dollar
In 1998 the value of pensions is
Both estimates are maxima: actual figures are likely to be much lower. The figures are given in 1992 Hong Kong prices: the real cost in UK terms will increase if Hong Kong salaries and pensions increase more rapidly than the UK RPI.
fell to HK $ 20: £ 1. estimated at HK $ 167 m.
Option D
HKG/SARG to pay annual HMOCS pensions bill to HMG, which would pay individual pensions at a fixed rate as under Options A, B or C.
ANNUAL COST:
Maxima would be as under Options A, B and C,
depending on the exchange-rate chosen, plus some extra administration costs; but these could be offset by savings in years when the Hong Kong dollar market value is higher than the safeguard rate.
Option E:
HMG to subsidise a private-sector scheme, providing an exchange-rate hedging mechanism over 10 years.
ANNUAL COST:
In 1993/94:
In 1996/97: In 2010/11:
CONFIDENTIAL
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