cst.ps/let/1pw3.7
CONFIDENTIAL
3.
The Chief Secretary said that he too was keen to make progress, though reaching immediate agreement would not be possible. He agreed that officials should explore urgently packages of measures to satisfy the legitimate expectations of HMOCS in Hong Kong. But he thought it important to set out the position from which he was agreeing that such work should be embarked upon. If the HKG had been willing to protect the value of HMOCS pensions by capitalising future payment obligations and had then used these to purchase sterling assets it would, in effect, have been paying out today what it would have paid out in the future anyway. This was a nil cost solution which HKG could well have afforded, given the size of its reserves. The Chinese Government need not necessarily have been an obstacle; he understood that at one stage they had been contemplating a capitalisation scheme for HKG staff. By contrast if, instead, the UK Government went down the sterling safeguard route it would be taking on a very significant contingent liability.
4.
The Chief Secretary said that one possibility might be for the private sector to provide a sterling guarantee. Hong Kong HMOCS might assign their pensions to a financial intermediary and receive a lump sum in exchange. He understood that Barings had advised that there was a market for such arrangements.
5. The Chief Secretary said he was unclear about the objective of the compensation/incentive scheme. It had apparently been designed originally to provide an incentive to HMOCS to stay in post beyond 1997. This situation differed from other former dependant territories where HMOCS had been compensated for their loss of livelihood after independence.
6. Finally the Chief Secretary noted that whatever work was done on sterling safeguards, compensation/incentive schemes, changes to SPOS regulations and early retirement arrangements,
all the elements should be considered together to ensure that any package of assistance was coherent and constructed at minimum necessary cost to the public purse.
7. Mr Patten said that the Government had to decide what size of row it was prepared to have with the HMOCS and when this would take place. Assistance had been guaranteed in previous White Papers. He thought that the sort of package being proposed by the FCO would provoke a containable outburst. There would be fuss about capping a sterling safeguard but the Government could argue that arrangements were, by and large, similar to those which had applied to HMOCS in previous dependant territories. On the attitude of the Chinese Government to capitalisation, he thought their proposal had been to set aside a block of HKG reserves to cover all pension obligations arising after 1997. He understood that the private sector was only willing to consider capitalisation options over shorter periods and covering smaller sums than were involved here. On the objectives of the compensation/incentive scheme, there were elements of incentive to keep key officials in place up to and, if possible, after 1997.
there was also a feeling that HMOCS should be compensated for the uncertainty which the handover of Hong Kong would have on
But
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