CONFIDENTIAL
SUB-COMPONENT: PRIVATE SECTOR SCHEME
Officers would take out a HK dollar loan from a financial institution equivalent to the maximum commutable element of their pension. The loan would be converted to sterling and placed on deposit with the institution. The institution would hold the sterling as security and would release it to the officer on retirement when the HK dollar loan was repaid.
The institution would charge the officer a margin to protect itself from HKG/SARG defaulting on the commutable element of the pension and from currency fluctuations. There would be a further cost to the officer if the interest received on the sterling deposit was less than the interest charged on the HK dollar loan. If the costs involved were so expensive as to make the scheme unattractive, HMG could consider subsidising an element of the costs.
The Bank of England consider that such a scheme might be feasible and is worthy of further investigation. However, even if this facility was offered it would be for a maximum of 10 years, ie to 2002 and the costs involved have yet to emerge. (Hong Kong Bank have been asked to provide advice on a scheme that they could offer and the cost involved).
Advantages:
(a)
Reduced cost to and involvement of HMG
(b) If this facility could be offered on reasonable terms,
both HMOCS and local HK civil servants could benefit If HMG provided some subsidy, HMG and officers would be sharing the risk
(၁)
Disadvantages:
(b)
(c)
(a) Would not protect the non-commutable element
Would not be available to officers retiring after 2002 Any HMG subsidy would be actual cost as opposed to contingent liability
options.1.
SLM
CONFIDENTIAL
9
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