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GAD
Government Actuary's Department
HKA 233/1
22 Kingsway, London WC2B 6LE
Telephone: 071-242 6828 ext.
Fax: 071-831 6653
Your reference:
CONFIDENTIAL
Mr N J Cox,
Hong Kong Department,
Foreign & Commonwealth Office,
LONDON,
SW1A 2AH
Our reference:
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Mr Mogy 12 26/9
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Date:
9 September 1992
Dear Mr Cox,
HONG KONG HMOCS OPTIONS
482
1. Further to Grant Ballantine's letter of 31 July 1992, I enclose estimated costs for Options A, B, C, D, and the early retirement option (ER). The results are summarised in the attached tables which give the capitalised values of the future streams of payments under each option.
Results
2. All the estimates depend upon assumed future exchange rates. For the moment, we have assumed a sudden currency realignment on 1 July 1997 with no major movements thereafter, but other scenarios could easily be adopted.
3. Option A This is the straightforward sterling safeguard option, under which HMG supplements the pension payments to HMOCS if the HK$ falls below a fixed trigger level. The estimated costs of this option are largest when the HK$ is assumed to become worthless on 1 July 1997. The costs decrease as the trigger level is chosen to reflect a less valuable HK$, and are zero when the HK$ is assumed not to fall in value below the trigger level.
4.
Option B Under this option, the trigger level depends on the exchange rate at the time of retirement, or 30 June 1997 if earlier. For actives, it is assumed that the present exchange rate of about HK$14.40 will apply until 30 June 1997. For current pensioners, we have used the 1972-1991 exchange rates in your letter of 3 August, and HK$13.40 in earlier years, to estimate weighted mean exchange rates at retirement. These are HK$11.53 and HK$11.83 for current pensioners and dependents respectively. Setting the trigger level in proportion to these rates makes the safeguard more valuable for these groups than for HMOCS who are still in service. Option B with a trigger level of 50% has similar costs to option A with a trigger level of HK$20.
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