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 COST: The potential costs of this option can be estimated by interpolating between the relevant rows in the table under Option A. For example, if the average Hong Kong dollar sterling exchange rate was HK$16: £1 and the safeguard set at 33% below this rate, the potential cost would be similar to a safeguard level of HK$22:£1 under Option A.
Advantages:
(a) Would relate to exchange rate closer to 1997 when the
safeguard would come into effect: if the HK$ were to weaken in this period, HMG's liability could be
(b)
흐흐
(c)
significantly reduced
No likelihood of HMG incurring any liability for some time after 1997
Simple to administer
Disadvantages
(a)
(b)
(c)
(d)
Provides limited reassurance to those who need it now 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
significant costs
Officers may press for the safeguard to be based on HK salary levels prevailing nearer to 1997 which is likely to be more expensive
Depending on chosen level of support, may be opposed by some serving officers as not taking account of differentials which are greater for Administrative Officers and Judges than for Police
options.1.
SLM
CONFIDENTIAL
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