22 February 1993
Mr Woodfield
HMT
HONG KONG PENSION SAFEGUARD
1.
You wrote to John Morris and to myself on 12 and 13 November 1992, setting out your understanding of how the sterling pension safeguard would operate. You attached to your letter of 12 November Dave Fish's explanation of the safeguard mechanism, which you said accorded with the Treasury's understanding. We agreed that your understanding accorded with our's.
2.
It was therefore something of a surprise to see that the Chief Secretary, in his letter to the Secretary of State of 15 January, proposed that the sterling safeguard would only operate when the amount the pensioner actually receives from both the Hong Kong Government and the ODA under the SPOS Regulations - falls below the safeguarded level. This is clearly different from our earlier understanding which was that the safeguard would protect the basic pension (see Dave Fish's explanation attached to your letter of 12 November) and not to pension which would include the basic pension and any SPOS addition. The introduction of this new feature is a very significant departure from our earlier understanding and, in all probability, would have the effect of providing far less protection than if the safeguard related only to the basic pension.
3.
As you said in your letter of 13 November, it is important that there is no misunderstanding between us on technical matters should Ministers reach agreement (or, as now looks likely, should a political decision be taken). It would therefore be very helpful if you could clarify your present thinking on how the pension safeguard scheme should operate.
4.
Although the Secretary of State and the Chief Secretary here agreed to put to one side for the moment the proposed amendment to the SPOS Regulations, our view is that this amendment is essential if there is to be any chance of the HMOCS Association agreeing to the proposed sterling safeguard, at whatever rate, on the basis of the mechanism proposed in
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