TNAG-2685-FCO40-3886-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 91

cst.ps/dr/5mp2.2

CONFIDENTIAL

HONG KONG HMOCS ARRANGEMENTS

ANNEX

The points set out below address the misconceptions contained in

the Governor's letter:

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 the protection afforded by SPOS;

has agreed to

HMOCS pensions in sterling

case of HK, a DT also

the Governor mentions the case of Brunei where the

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;

we should do all we can to

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

This is

proposal in my letter of 15 January for a safeguard

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

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.