The UK faces being slapped with an extra €2 billion on top of its existing EU pensions bill as a result of a 21% increase in the pension liabilities of EU officials.
The requirement to pay its share of liabilities for pensions of EU civil servants is part of the roughly €39 billion of commitments that London agreed to settle as part of the Withdrawal Agreement, which was passed in January.
Back in January 2019, the UK government said that it expected to face around €9.75bn of EU staff pension liabilities.
However, the European Commission’s latest financial accounts showed a €17.203bn increase in the net liabilities of its pension scheme, rising from €80.456bn in December 2018 to €97.659bn as of December 2019. That will increase the share which the UK is responsible for paying to €11.6bn.
The cost of the Commission’s Pension Scheme Liability Bill has increased by over €30bn since the UK voted to leave the EU in June 2016, but since the liabilities have been formally agreed to and signed into UK law it appears that Boris Johnson’s government will have little alternative but to settle the revised bill.
“This Pension Scheme of European Officials (PSEO) liability has increased mainly because of the actuarial loss from changes in financial assumptions caused by a sharp decrease in the nominal discount rate,” states the accounts report.
“Furthermore, as the nominal discount rate is adjusted for inflation to obtain the real discount rate, this year the real discount rate was for the first time negative – meaning that any given amount is worth more today than in the future: this significantly increases the size of the liability at year-end,” it adds.
The liabilities set out in the Withdrawal Agreement are to be based on the EU staff pension fund’s membership as of 31 December 2020, when the post-Brexit transition period ends.
John Clancy, a visiting professor at the Centre for Brexit Studies at Birmingham City university, warned that the figure could actually rise again.
That is because the increase is the result of further quantitative easing by the European Central Bank in response to the coronavirus pandemic which “will no doubt have a further impact on the bill and this year’s figure will get revised up again this time next year.”
“It could end up being an extra €3 billion.”
The UK’s payments for its EU pension liabilities will be made in 10 instalments, with the first due on 31 October 2021, and will cover former officials working in the European Defence Agency, the European Union Institute for Security Studies, and the European Union Satellite Centre, as well as former MEPs and other officials.
[Edited by Sam Morgan]