aef1/kw/2.24.9
RESTRICTED
on
(i) 1992
this stage. Moreover, I think some further work should be done it. The potential costs need to be calculated based on HMOCS salary levels uprated for UK RPI only and (ii) the HK$ exchange rate pertaining at 1 July 1997. I note that Mr Hughes's calculations assume a 2% rise in HK HMOCS' salaries above an annual inflation assumption of 6.28%. Mr Hughes has informed me
that this is based on historic increases in HK HMOCS salaries. However, I see no reason to factor in additional benefits to HMOCS which we might safeguard above those which their UK counterparts could expect to receive. Basing the exchange rate at 1 July 1997 for all HMOCS officers would eliminate Mr Cox's concern that setting it at the date of retirement would be to the advantage of those already retired - when the HK$ was stronger against the pound - than those we are encouraging to stay on.
Mr
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Cox also felt that we need not bother Ministers with anything more than a passing reference to an early retirement option (with maximum commutation). In my view Ministers will need a full assessment of the implication of early retirement in order to arrive at a way forward. The potential for savings set out in Mr Hughes' letter assumes no reduction of benefits for HMOCS who opted for early retirement, and may therefore be understated. This is of course a matter for the HKG, but I would have thought that there must be real advantages to them of extending their early retirement to all HMOCS officers as part of their policy to localise posts. Neither they nor the Chinese can relish the prospect of disgruntled HMOCS officers staying in post knowing they do not have access to the most senior jobs. From our policy perspective, an extension of the availability of early retirement for the HMOCS should help to reduce pensions costs and uncertainties, and should be possible without risk to the objective of retaining selected, key personnel.
Having turned down our proposal to capitalise HK HмOCS pensions, it seems to me entirely reasonable that the HKG should be receptive to HMOCS' pleas for early retirement. The options paper should therefore have a full assessment of the benefits of early retirement against any potential costs, such as bringing forward compensation payments and safeguarding pensions brought into payment earlier than they would otherwise have been. It should also cover capitalisation by the HKG, as we have agreed, for completeness.
I find Mr Cox's arguments for rapid progress to forestall a "new hot-headed HMOCS Committee" being voted in less than compelling. What is important at this stage is that the paper we put to Ministers contains carefully thought-out options which meet Our obligations to HK HMOCS at minimum cost to HMG .
I
take this opportunity to welcome you to the team dealing with this tricky but interesting issue and to wish Nigel well in his new posting in Peking.
I am copying ODA.
this letter to Mr Hughes in the GAD and Mr Fish in
Yours,
R
KEVIN WOODFIELD
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