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Baroness Blackstone: I have some sympathy with the intention behind the amendment, particularly in view of the fact that all three noble Lords who have spoken in support of it are particularly concerned about those Hong Kong Civil Service pensioners who have been on the lowest pensions and the lowest salaries. However, I regret that on these Benches we cannot support the amendment. As the noble Lord, Lord Wilson of Tillyorn, has just admitted, it is all rather abstract. One of the reasons for that is that it is exceedingly unlikely that there will be a catastrophic fall in the value of the Hong Kong dollar of the kind which is envisaged by the amendment.

I understand that for Hong Kong Civil Service pensioners to lose out on average, the Hong Kong dollar would have to fall to one-third or even less than one-third of its present value. With great respect, I do not believe that we can compare Hong Kong with Zimbabwe in these matters. At least I very much hope that the comparison is inappropriate. Therefore, we are talking about a hypothetical situation which is very unlikely to materialise. I hope that we can express rather greater confidence in the future of Hong Kong than this amendment implies.

I do not wish to go into detail as regards the amendment or why it does not seem to me to be appropriate. I shall leave that to the Minister. But perhaps I may assume that the Government will agree to consider the situation again if, due to some unforeseen circumstance, a circumstance which we must all hope and pray will never arise, there is a calamitous collapse of the Hong Kong dollar. As Clause 4 stands, it provides the flexibility to do that. Assuming that the Government are prepared to use that flexibility in this respect--and I believe that the Government have already indicated in another place that they would do so--there seems to me no need to alter this Bill on the basis of a totally hypothetical and, indeed, exceedingly unlikely change in the situation.

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Moreover, the Bill is a compromise which was reached after five years of discussion and negotiation between the Association of Overseas Civil Servants in Hong Kong and the Government. Representatives of that association there believe that the Bill will provide reasonable security for civil servants in Hong Kong. They wish the legislation to be passed as proposed, as I understand it. Members of OSPA apparently think rather differently, but I do not believe that they have been directly involved in the negotiations.

I am not usually able to support the Government on matters of this kind but on this occasion I believe they have got it about right and their proposals are fair and reasonable.

Lord Chesham: As has already been said, this amendment is technically flawed. Hong Kong pensions are not paid in pounds sterling. They are and will continue to be paid in Hong Kong dollars. Also, the amendment makes no mention of dependants.

Putting aside those points, I am still uncertain what the noble Lord proposes. Is it his intention that the British Government should provide assistance to Hong Kong pensioners when the Hong Kong dollar/sterling exchange rate falls to 20 per cent. below the exchange rate at the date of the pensioner's retirement--in other words, if the pensioner had retired when the exchange rate was 10 Hong Kong dollars to the pound--or provide assistance if the rate fell to 12? Is the noble Lord suggesting that the scheme should protect 80 per cent. of the original sterling purchasing power of the pension? It is not clear from the amendment what is his intention. We believe that both of those solutions are flawed.

It may be useful, without repeating the points that I made on Second Reading, to make a few key observations about our proposed pension safeguard scheme. Hong Kong officers are not in the same position as their predecessors in other territories. Their pensions are not paid on the basis of a fixed rate of exchange with sterling and they receive on average pensions which are considerably higher than their UK counterparts and predecessors.

The British taxpayer will fund any liability under this scheme. The Government would be accused of irresponsibility if they did not seek to balance the interests of HMOCS and those of British taxpayers.

We are talking about a new benefit here. At the moment Hong Kong pensioners do not receive any protection of the sterling value of their pensions, and we are not asking HMOCS pensioners, many of whom are very well off, to give up any rise in their pensions as a result of an increase in the value of the Hong Kong dollar. Our proposal is essentially a free insurance scheme.

Our proposed scheme would ensure that over 75 per cent. of Hong Kong HMOCS pensioners would still be better off than their predecessors and their UK counterparts if there were a severe decline in the value of the Hong Kong dollar. As the noble Baroness, Lady Blackstone, said, the chances of the Hong Kong dollar falling substantially in value in the foreseeable future

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are remote. That does not mean that we should not be prudent but it should give confidence to Hong Kong pensioners.

There has been a great deal of comment about the figure of 21-to-one. Obviously when an average is used some people are better off and others are worse off. Our calculations show that for comparability to be achieved for police grades in 1992 the divider should be set at 19-to-one and at 23-to-one for non-police grades. It is a fair criticism of the scheme that a divider set at 21-to-one offers better protection to non-police grades than it does to police grades. That is something about which we were concerned. Therefore, we suggested to the HMOCS Association that a range of safeguard rates could be set which would mirror better comparability than only one rate based on an average. For example, the pensions of Hong Kong police officers could be protected at 19-to-one and those of non-police officers at 23-to-one. OSPA were also aware of that possibility. However, the HMOCS Association rejected that on the grounds that it would be divisive among its members. OSPA has not asked us to pursue that. That is why the scheme has one safeguard rate rather than a range of rates which would reflect better comparability for different grades.

I turn to various points that were raised. The noble Lord, Lord Redesdale, mentioned Zimbabwe. That has been a largely self-governing colony since the 1920s. The British Government do not accept any special responsibility for Zimbabwe public service pensioners as they do for the Hong Kong HMOCS pensioners. Therefore, there is no protection for Zimbabwe pensioners, who are much worse off as a consequence than would be the case for Hong Kong pensioners. They have no sterling safeguard.

My noble friend Lord Blaker asked why 1992 was chosen as a reference point for Hong Kong while no such point applied to other territories. The key reason is that in the case of other territories a fixed rate of exchange existed against sterling.

He said also that it is not fair to bunch grades. We could have tried to separate the grades, but to have done so would have resulted in many grades in Hong Kong being equated to grades lower than Grade 7. That would not have been to the benefit of Hong Kong pensioners.

We are aware of the case mentioned by the noble Lord, Lord Wilson. I should point out that the pensioner concerned had already received compensation and a commuted pension of some £600,000. That is more than the capitalised pension of his UK counterpart.

The noble Lord also asked about the SPOS regulations. They ensure that, like UK pensions, increases in all HMOCS pensions keep pace with inflation in Britain. As most HMOCS pensions were taken over by the British Government after colonies became independent and are paid in sterling, applying SPOS is a simple matter of uprating an officer's pension from the date of his retirement in line with UK inflation.

However, application of the regulations is more difficult for Hong Kong, as the Hong Kong Government continue to award pension increases, and as exchange rate movements can affect the sterling value of Hong

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Kong pensions. At present, any SPOS payments for Hong Kong pensions are reduced to take account of the sterling value of any pensions increase awarded by the Hong Kong Government, and also any increase in the total value of the pension due to exchange rate movements.

Hong Kong pensioners have complained that Hong Kong pension increases could be greater than the rate of inflation in Britain, but that the sterling value of their total pension could still decline and they would get no SPOS payments. We propose to amend the regulations to allow Hong Kong pension increases to be used to bring the Hong Kong pension up to its original sterling value. Only the balance left after that has been done would be taken into account to determine the amount of SPOS which should be paid. This amendment would help offset any pension losses arising from minor reductions in the sterling value of the Hong Kong dollar.

I should like to point out that the HMOCS Association is clear that it wants the Bill enacted as drafted. The Government have proposed a generous scheme. I believe that the principle of comparability which underlies it is fair and justified. I cannot accept the proposed amendment.

8.30 p.m.

Lord Redesdale: I thank the Minister for his response. It was not my intention to press the amendment; indeed, I neither foresaw a cataclysmic fall in the Hong Kong dollar, nor did I actually believe that the Bill was fundamentally flawed. The purpose of the amendment was really to give Hong Kong pensioners some kind of peace of mind which I had hoped the Minister would be able to provide.

I was surprised when the Minister said that he had to be responsible to the taxpayer because, throughout his speech, he made mention of the fact that the proposed provision would probably never be used in any event. Therefore, even if the Minister accepted the amendment, it would never, in theory, be triggered if the Hong Kong dollar did not fall. However, I believe that some degree of peace of mind has been given. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Remaining clauses agreed to.

House resumed: Bill reported without amendment; Report received.

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