TNAG-2685-FCO40-3886-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 52

ct.ps/dr/5mp2.2

CONFIDENTIAL

HONG KONG HMOCS ARRANGEMENTS

ANNEX

The points set out below address the misconceptions contained in

the Governor's letter:

Useful

The Governor says that SPOS does not provide any real

exchange rate protection. This is not the case. SPOS

guarantees that basic HMOCS pensions will attract at

least the same increases as UK public service pensions.

The increases are calculated on the sterling value of

the basic pension using the exchange rate prevailing on

the date of retirement. Consequently, while the sterling

value of the basic pension may fall because of exchange rate movements, the sterling value of the pension increases which SPOS guarantees is safeguarded. The longer the pension is in payment, the greater becomes

the pensions increase element and afforded by SPOS;

of

-

the protection

Brunei where the

has agreed to

HMOCS pensions in sterling

case of HK, a DT also

we should do all we can to

the Governor mentions the case

successor government and not HMG

underwrite a safeguard on

terms; it follows in the

relatively well off, that

secure a HK-underwritten safeguard before incurring potential costs to the UK taxpayer;

I am not wholly convinced that a HK-funded safeguard should be ruled out at this stage. However, if one is not achievable I have accepted that HMG must be prepared

to step in if necessary.

I believe the detailed

proposal in my letter of 15 January for a safeguard

based on HK$26:£1 to be fair and reasonable. This is

not a safeguard level plucked from the air. It is guided by legal advice that the Government can justifiably take into account the relative salary levels and pension entitlements of HK HMOCS vis a vis their UK counterparts when deciding how a safeguard scheme should operate.

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