TNAG-2428-FCO40-3530-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 82

CONFIDENTIAL

OPTION C: AVERAGE EXCHANGE RATE OVER EXTENDED PERIOD

HMG to underwrite pensions based on (but lower than) the average HK dollar-sterling exchange rate over an extended period (eg. 3 years) up to 30 June 1997. The safeguard would be triggered when the prevailing HK dollar - sterling exchange rate falls below the average rate by a specified percentage. Possible percentages might be:

(a) 25% below average rate eg. at average rate of $12: £1, the safeguard would activate when the rate fell to $15:£1

(b) 33% below average rate

(c) 50% below average rate

(d) 65% below average rate

POTENTIAL ANNUAL COSTS: see graphs attached

Advantages:

(a) Would relate to circumstances closer to 1997 when the

safeguard would come into effect

(b) No likelihood of HMG incurring any liability for some time

after 1997

(c) Simple to administer

Disadvantages:

(a) Provides no reassurance to those who need it now (b) HMG would be taking a punt on the exchange rate - if the

HK dollar was very strong over the extended period to 1997 and depreciated substantially thereafter, HMG could incur

(c) Officers may press for the safeguard to be based on HK

salary levels prevailing nearer to 1997

significant costs

NOTE: This option could also accommodate pay differentials

between grades by setting different percentage levels for different grades.

options.1.HMOCS

mvs

CONFIDENTIAL

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