Under 1972 Regulations
Pension due
Basic:
SPOS payable after one year
£
As intended by the Act
Pension due
Basic:
£
$120,000 @ $10 = £1
12,000
$120,000 @ $12
=
£1
10,000
Increase: 10%
1,200
Increase: 10%
1,000
Total
13, 200
Total
11,000
Pension payment calculation
Pension payment calculation
$126,000 @ $10 £1
HK Govt:
HK Govt:
$126,000 @ $10 = £1
12,600
SPOS:
Total
600 13, 200
SPOS Total
12,600
Nil 12,600
The flaw in the regulations is illustrated by the use of a current rate of exchange, instead of the rate on the date of retirement, to determine the amount of pension due. Because the sterling value of the HK pension actually received (at current exchange rates) exceeded the amount needed to maintain the original sterling purchasing power of the pension, the SPOS of £600 should not have been paid.
The ODA must have been aware that they were paying SPOS in excess of what was originally intended but they did nothing about it until the Comptroller and Auditor General pointed out the conflict in the regulations with the main principle of the Act. The ODA then set about amending the regulations, "reluctantly" they told me, to correct their mistakes. Thus, the 1977 Regulations came into force but similar mistakes were made in the drafting of these new regulations, this time to the pensioners' disadvantage. In the 1980's and up to September 1992, when sterling rose in relation to the HK dollar, Hong Kong pensioners were receiving less SPOS than was necessary to maintain the original purchasing power of their pensions, again contrary to the main principle of the Act. Table 2 illustrates this:
Table 2
Assumptions
1. A person retired from the Hong Kong civil service on a pension of HK$120,000 pa when the exchange rate was HK$10 = £1. The original purchasing power of his pension was, therefore, £12,000 in sterling terms.
2. One year later the HK Govt. paid a 10% increase in line
with inflation in HK and the UK Govt. paid a 5% increase in line with inflation in UK. The exchange rate was then HK$12 £1. Therefore, a revised pension of £12,600 was needed to maintain its original sterling purchasing power.
=
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