aef1/kw/2.24.9
HM Treasury
J Morris Esq.
Hong Kong Department
RESTRICTED
HKA 233/1
Foreign & Commonwealth Office
London
SW1A 2AH
Dear Mr Morris
MUN
Parliament Street London SWIP 3AG Telephone 071-270 - 4902
Mr Sorge,
Firpl
Pa
seperate
taken.
Ju29/9 acter bein
No2919
28 September 1992
542
29/9
HONG KONG HMOCS: OPTIONS FOR PENSIONS SAFEGUARD
518 Your predecessor wrote to me on 11 September to consider any further information we might need for the options paper requested by Ministers. I was pleased to see the further helpful work by Mr Hughes (GAD), under cover of his letter to me of 23 September, in response to Nigel Cox's request. Combining the different trigger levels on the same graph is a much clearer way of presenting the potential costs involved for each option.
Mr Hughes' graphs cover option A, the straightforward trigger. I think it would be useful to have similar graphs for options B (a variable trigger) and C (a claw-back mechanism for HMG to benefit from a strong HK$). I deal with option B below. I attach a graph which Mr Hughes produced back in June which illustrates the effect of a claw-back based on a single trigger rate (HK$16:1). It would be useful to have this for all trigger levels and scenarios as set out for option A. Certainly it would seem to us that the more generous Ministers were disposed to be on a safeguard, the more it would be sensible to build in a claw-back.
I was also pleased to hear that progress is being made in Hong Kong on working up a private sector scheme (s),
that this is being done on the basis of a constituency and profile akin to Hong Kong HMOCS. Our Ministerial remit obliges us to thoroughly investigate this avenue and we should scrutinise carefully the response we get from the Hong Kong Government and Hongkong Bank. The guidance we received from Barings provides us with a useful yardstick. In this connection, I agree with Mr Cox that GAD should work up cost estimates were HMG to safeguard the non-commutable part of the pension only. I recall from our meeting on 23 July set the ball rolling on the options paper that we agreed that such a limited safeguard ought to be included as a complement to possible a private sector scheme safeguarding the commutable
element.
to
Mr Cox said that option B - percentage trigger rates above the exchange rate at the date when individual officers retire or above $14.40 - yields little in potential savings, is politically unattractive, and should discarded from the main body of the options paper. I think it remains an option and it is for Ministers to consider rather than for officials to discard it at
534
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