TNAG-2686-FCO40-3888-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 47

11-MAY-'93 TUE 17:29

ID:

CONFIDENTIAL

#EST POB

14.

b. the local pensions increase, to reflect increases in Hong Kong living costs, paid in dollars by the Hong Kong Government;

c.

the supplementary pension for overseas service (SPOS), paid in sterling by the UK Government. This makes up any shortfal1 between

and the sterling value of the increases paid on an equivalent UK public service pension.

b.

FCO and Treasury agree that the Government must guarantee pensions at some level against the possibility that problems in Hong Kong might lead to a substantial fall

substantial fall in their sterling value or that the Chinese Government refused to pay pensions. with luck, given the Chinese interest in maintaining stability and the value of the assets in Hong Kong, no significant payments would ever need to be made. But if the Hong Kong dollar collapsed, the contingency payments could need to start immediately.

Treasury

age and

15. Both the FCO and the

Would use the same methodology. The sterling value in 1992 of the pension entitlement of each officer given his or her grade, length of service would be calculated, using an assumed dollar:sterling exchange rate specified for the purpose. That would be uprated in line with the UK RPI through to 1997 to give a nominal safeguard baseline. If at any time thereafter the value of an officer's pension, when converted from Hong Kong dollars to sterling using the prevailing exchange rate, were to fall below

below that baseline, it would be supplemented by the Government to bring it back to the baseline.

16. There are important differences in the proposals for applying this methodology.

17. The Treasury argue that, in judging what is fair, it is reasonable to take account of the differential between comparable Hong Kong and UK staff in their salary and pension entitlements. Under their proposal the safeguard would cut in only when the sterling value of a pension had fallen to the point where it was comparable to the equivalent UK pension. To achieve this:

a.

The assumed dollar: sterling exchange rate would be set at 26:1

calculated by the Government Actuary's Department as being the rate at which average Hong Kong HMOCS remuneration would be equivalent to that of their UK counterparts (the Current exchange rate is 11:1). rrent exchange rate is 1:1).

CONFIDENTIAL