TNAG-2431-FCO40-3533-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 5

CONFIDENTIAL

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record of the meeting between the Secretary of State and Mr Portillo, also attended by Mr Patten, on 2 July;

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copies of the Governor's letter of 13 October to the

Secretary of State and the Secretary of State's reply of 27

October.

2. On the basis of our contacts with Treasury officials, we believe that Mr Portillo's tactics may be:

(i) to accept in principle that HMG should provide a

pension safeguard but to haggle over the details. He may say

that the safeguard should not give Hong Kong officers a better

deal than enjoyed by UK civil servants of equivalent rank. This thinking underlies Option B in the paper (UK comparator),

which would be extremely difficult to administer. The same

result can be achieved by adjusting the trigger level in

Option A (Fixed Trigger). Mr Portillo may therefore be willing to accept a trigger level of 30.1, to give himself

room to be beaten down to 22.1.

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(ii) to argue that HMG need protect only the

non-commutable element of the pension and that still further

work is needed on a private sector scheme to safeguard the

commutable element. The Bank of England consider that such a scheme should be feasible even if there is no HMG guarantee

against default by the SARG; but Hong Kong Bank have advised

us that they could not offer an effective scheme without such

a guarantee. The Treasury do not want to offer a guarantee,

but they may consider subsidising the costs involved in a private sector scheme. Mr Portillo may argue that more costings are needed, and perhaps views from a second financial institution. He may, in consequence, argue that a decision on the details of a sterling safeguard must be deferred until the

sub.overs.civils.ADM CONFIDENTIAL

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