TNAG-2687-FCO40-3889-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 59

CONFIDENTIAL

HMOCS remuneration would be equivalent to that of their UK counterparts (the current exchange rate is

is 12:1).

0.

The safeguard would apply to the total pension - ie elements a, b and c of paragraph 13. Over time, elements b and c account for

for a progressively larger proportion of the total. The Treasury approach would leave the level of the safeguard unaffected by such changes.

13. The

FCC argue that comparability with the UK has rever applied in previous cases (even though it has generally been true that the salaries and pensions of overseas civil servants have surpassed those of UK staff) and should not now. Under their proposal:

19.

a.

The assumed exchange rate would be 16:1, which they consider to be the furthest it is reasonable to go in recognising Hong Kong: UK relativities. This compares with the 13.6:1 which the HMOCS Association propose should be used as being the average rate for 1991.

b. The safeguarding mechanism would apply only to the basic pension, and not to the pensions increase elements. This would give pensioners two separate safeguards. SPOS already safeguards their pensions increase, and will be payable by the UK Government regardless. The FCO approach would separately protect the basic pension. Under the Treasury approach, by contrast, SPOS would in effect be netted off from the total to be safeguarded, so that there would be no independent protection for the basic pension: it would be a residual once SPOS had been deducted.

There is a separate issue about the calculation of the SPOS element. At present if a pensioner gains from fluctuations in the dollar: sterling rate, that is counted against his or her SPOS entitlement. But if he or she loses, SPOS does not make up the loss. The FCO believe that, irrespective of the discussions on Hong Kong, these arrangements are inequitable (though any legal challenge could probably be successfully resisted). They propose that reductions in the value of a pension resulting from exchange rate fluctuations should in future be taken into account in calculating SPOS entitlements. This would cost an estimated £1-2m per annum for Hong Kong HMOCS, although that could rise over time. The Treasury see no case for changing the SPOS

arrangements.

CONFIDENTIAL