CONFIDENTIAL
FM FCO
TO PRIORITY HONG KONG
TELNO 1083
OF 09160OZ JULY 92
CONFIDENTIAL
TOP COPY
Q DIST?
HKA 233)
454
010160
MDLOAN 0526
Pa
HMOCS: PRIVATE SECTOR PENSION INITIATIVES
457
1. IN OUR TELNO 1078, WE ADVISED THAT THE CHIEF SECRETARY TO THE TREASURY WAS CONTINUING TO PURSUE THE POSSIBILITY THAT THE PRIVATE SECTOR MIGHT PROVIDE A STERLING GUARANTEE. HE SUGGESTED THAT HONG KONG HMOCS MIGHT ASSIGN THEIR PENSIONS TO A FINANCIAL INTERMEDIARY AND RECEIVE A LUMP SUM IN EXCHANGE. WE HAVE ASKED THE TREASURY TO PRODUCE THE ADVICE FROM BARINGS, WHO APPARENTLY MAINTAIN THAT THERE IS A MARKET FOR SUCH ARRANGEMENTS.
A
2. WE HAVE CLEARLY NOT YET MANAGED TO KILL THIS IDEA AND IT WILL HAVE TO FIGURE IN OUR OPTIONS PAPER. WE THEREFORE NOW NEED TO REVISIT THE MARGOLIS REPORT AND EXPLORE WITH YOU IN SOME DETAIL PRECISELY WHY YOU THINK THESE PROPOSALS CANNOT WORK. SEEMS TO US THERE ARE TWO AREA WE SHOULD CONCENTRATE ON:
· THE SPREAD OF POTENTIAL PENSIONERS THAT ANY PRIVATE SECTOR SCHEME COULD COVER.
THE QUESTION OF A GOVERNMENT SUBSIDY TO ANY SCHEME.
POOL OF POSSIBLE BENEFICIARIES
4.
IT
WE CONSIDER THAT A KEY POINT AGAINST ANY PRIVATE SECTOR PROPOSAL WOULD BE IF IT WAS EFFECTIVELY LIMITED TO THOSE WHO WERE RETIRING WITHIN A FAIRLY SHORT TIME-FRAME - SAY 10 TO 15 YEARS. IF WE CAN SHOW THAT ANY SCHEME RUNNING LONGER THAT THIS PERIOD WOULD BE EXTREMELY UNATTRACTIVE AND/OR GROSSLY EXPENSIVE TO SUBSIDISE, THEN WE HAVE A FIRM BASIS FOR REJECTING ANY SUCH PROPOSALS. WE NEED IN THIS TO BEAR IN MIND THAT THE TREASURY MAY WELL BE WILLING TO SUBSIDISE A SCHEME: TO THEM A KNOWN SUBSIDY OF SEVERAL MILLION POUNDS MIGHT WELL BE A MORE ATTRACTIVE PROPOSITION THAN AN UNKNOWN CONTINGENT LIABILITY OF SEVERAL HUNDERED MILLION POUNDS, SHOULD THE HONG KONG DOLLAR COLLAPSE.
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5. IT SEEMS CLEAR THAT THE TWO MAIN FUNDING OPTIONS PROPOSED BY MARGOLIS FOR HIS INITIAL PROPOSAL BANK LENDING OR THE ISSUE OF DEBT SECURITIES BEGIN TO BECOME NON-VIABLE AFTER ABOUT 10
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