The calculation of the European Union’s pension liability must be calculated in a ‘reasonable’ way to determine the share the UK must pay upon leaving the European Union, according to a think tank.
In a blog post published by Bruegel, the think tank noted that the ‘Brexit bill’, the financial settlement between the UK and the remaining 27 member states, is already the subject of intense discussion. A key area of this is whether the UK will be required to pay for the pensions of European officials.
However, regardless of what will be decided, the think tank believes the way the liability is calculated should be altered, especially when it comes to deciding how much the UK should pay.
Currently, EU balance sheets estimate the present value of pension and sickness insurance liabilities at €63.8bn. This figure which remained largely stable at around €35bn from 2005-2011 has almost doubled since then.
However, Bruegel said using a different calculation that uses average nominal discount rate assumptions, used for calculating EU employee contributions, (4.8 per cent adjusted down to 2.7 per cent after inflation consideration), rather than the current discount rate (2 per cent adjusted down to 0.6 per cent after inflation consideration) would calculate liabilities at a ‘reasonable’ value of €43.1bn.
Furthermore, it stated that only two thirds of the ‘reasonable’ value should be considered as a liability to which the UK should contribute, because one third of pension costs are paid by EU officials. Based on Bruegel’s calculations, if the assumptions for EU employee contributions are used for Brexit bill calculations, then the UK should pay a share of a liability of approximately €29bn.
