TNAG-2427-FCO40-3529-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 178

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of HK $ 3.5 billion, with each of the 14 following payments 10% higher in real terms than the previous year's.

7.

I have done a couple of other calculations on similar lines:

(a) an initial payment of HK$ 3.5 billion, rising each year by 5% (easier to sell to the Chinese than 10%, as corresponding to HK projected growth rates) would give HK$ 75.5 billion in 2007/08. As far as HKG are concerned this would involve setting aside HK$ 19.34 billion (1992 prices) from the reserves between now and 1997: more than the HK$ 15 billion proposed by the Chinese

(b) a 10-year time-frame would probably be easier to sell to the Chinese than 15 years. An initial HK$ 3.5 billion, rising by 5% pa, would give HK$ 44 billion by 2002. If in addition the SARG were in 1997/98 to match from the Land Fund the contributions so far made by HKG (HK$ 19 billion) this would give HK$ 63 billion by 2002.

(c) an initial payment of HK$ 3 billion, rising by 10% pa, would give HK$ 48 billion by 2002, or HK$ 66 billion if there was a top-up from the SARG Land Fund as above (pre-1997 HKG contribution: HK$18.31 billion).

(d) we should also make some estimate of what interest the fund would pile up. For example 5% compound interest pa would add some HK$ 9 billion to the figures at (b) above, ie giving HK$ 53 billion or HK$ 72 billion by 2002. (But it is perhaps over-optimistic to assume that one could get 5% above the rate of inflation.)

8.

Unless there is some fatal flaw in these figures, I begin to think that it might not be impossible for Hong Kong to work towards a fully funded pensions scheme over a reasonable period, if the SARG would carry on the good work. There is no certainty that the Chinese would agree to this, but tactically there is advantage in HKG's exploring it with them. If the Sinologists are right about Chinese suspicions of HKG/HKG, Lu Ping could be well-pleased to squeeze out of us a further commitment regarding the 1997 inheritance - another little pot of gold which the British are leaving behind in Hong Kong.

9.

Perhaps while Hong Kong crunch the numbers, we should start thinking about what practical arrangements could be put in place for such a pensions trust fund? Mr Waters raised the legislative point about charges on Government revenue. You have floated the idea of officers/pensioners having individual accounts with the fund (which would pay the pensions direct, rather than just paying over the appropriate annual amount to the revenue?). The balance between reassuring the civil service and not putting off the Chinese will be hard to

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