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Option C, as described in the note, is in a form which enables costs to be readily calculated. However, I wonder whether that form of Option C would be credible in relation to pensions in payment. If the sterling guarantee were to operate on a fixed rate of exchange of HK$22 to £1, or even at the rate of HK$16 to the £1, some pensioners would likely suffer a significant drop in the level of their pension payments being received as at 1 July 1997. In order to make such an option feasible, it would probably be necessary to adopt a variant of Option B for pensions in payment. Please let us know if you would like costs calculated for such a variant.
Option B In order to assess the cost of Option B, we need a historical record of the level of the exchange rate between sterling and the Hong Kong dollar after it moved away from the fixed level of HK$16 to the pound. We can obtain this historical information from our own sources, but it would probably save some time if you have the exchange rate history in a readily available form that can be given to us.
Option D I am not sure that the comments in your note under Option D reflect the Treasury viewpoint. In any event, it would probably be more helpful if we could give you an indication of the costs under different scenarios, depending on the options exercised in relation to commutation, and also the choices made between the existing pension scheme and the new pension scheme. I would propose that we determine costs under four different scenarios, as follows:
All HMOCS opt to remain members of the existing scheme, but do not exercise any commutation option.
(a)
(b)
As for (a) above, but all officers exercise full commutation at the 25% level.
(c)
All HMOCS opt for the new scheme, but no officer opts to take advantage of the commutation option.
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(d)
As for (c) above, but all officers opt for the maximum commutation possible at the 50% level.
I would not suggest that the four possibilities listed above should be costed for all the possible options. It should be sufficient to indicate the range of the costs for one or two of the key options. If this is done, then you can decide on the best form of presentation for Ministers.
Early Retirement Before endeavouring to assess the impact on costs of a substantial early retirement programme, we shall clarify with Richard Plumb of ODA precisely what benefits will likely apply in such a situation. If my understanding is correct, the benefits that we need to cost can be taken as a full level of pension accrued up to 1 July 1997, on the basis that that pension will come into payment with effect from 1 July 1997, and will not be subject to actuarial reduction in respect of its early payment. This costing will take us a little longer than the other costs, because some
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