CONFIDENTIAL
OPTION E: HMG PROFITS FROM HMOCS WHEN HK$ IS STRONG
Safeguard costs would be offset by savings to HMG in years when the HK$ value is above the safeguard trigger. Scheme would operate administratively by HMG paying individual pensions at a fixed rate from funds provided by HKG/SARG
POTENTIAL COST:
Trigger
Present value, as at 1 October 1991, in UK£ million of the estimated costs or (savings) of options E: when the exchange rate from 1 July 97 is assumed to be
HK$28
HK$ worthless
HK$16 HK$20
level (HK$)
13.76
53
118
192
377
16
0
65
139
324
22
(88)
(24)
51
326
30
(151)
(86)
(12)
173
Advantages:
HK$13.76 and then depreciating at 2% pa
87
34
(54)
(117)
(a) The officer would share the risk with HMG reducing HMG's
potential cost
(b)
(c)
(d)
Likely to be inflow of funds to HMG initially which would help cover any liability in later years
Some officers may not opt for the scheme, thus reducing HMG's contingent liability
Officers would have certainty about the sterling value of their pension
Disadvantages
(a) Profit making by HMG has never been a feature of other
safeguard schemes and would attract criticism
(b)
(c)
If the HK dollar became worthless, HMG would risk being pressed to assist those who had not participated in the scheme
SARG payment of pension costs direct to HMG might increase temptation to default or at least failure to pay HMG any 'profit' element
options.1.
SLM
CONFIDENTIAL
9
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