CONFIDENTIAL
Option E:
HMG to subsidise a private-sector scheme providing loans at fixed interest rates for up to 10 years (ie up to 2002) against the commutable portion of the pension; HMG possibly guaranteeing the loan against default by HKG/SARG.
ANNUAL COST: ???
Option F
HMG to subsidise a private-sector scheme, providing an exchange-rate hedging mechanism for the full pension (ie for life), or for the commutable portion of the pension when due (ie for up to about 25 years).
COMMENT: We have concluded that this Option is not technically feasible: the private sector is not prepared to bear such long term Hong Kong risks.
NOTES:
1.
In order to fix in 1992 UK prices the potential liability under Options A, B and D (ie to insulate the scheme against the possibility of Hong Kong salaries/pensions increasing more rapidly than UK increases), we consider that it would be necessary for HMG to safeguard only a notional pension, corresponding to the pension payable in 1992 for the retirement rank, converted into sterling at the average 1991 exchange-rate (HK$13.76 : £1) and upgraded in line with the
UK RPI.
2.
The Treasury consider that it would be desirable to require all officers benefiting from a scheme to commute at retirement their maximum entitlement (50% or 25%, depending on whether they are on the new or old pensions scheme). This would reduce the long-term contingent liability for HMG, although if there were an early fall in the value of the Hong Kong dollar it would have the effect of bringing forward the liability.
options.1.HOCS
EVE
CONFIDENTIAL
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