A number of articles and blogs have raised the question of settlement of the unfunded DB pension liabilities of UK eurocrats. Many have observed that these are generous and have reported the complex and changing formulae by which member contributions are determined. Under the existing arrangements pensions are paid when due from the EU general budget. The liabilities are jointly guaranteed by the EU member states

Many have, correctly, noted that the problem reduces to the determination of the discount rate to be applied to these liabilities. However, before getting to that, there is a precursor; the scheme may be unfunded but there is the not so small matter of all the contributions already paid by and on behalf of scheme members. What was the application of those funds; where are they now? It is not at all obvious that member state participation in the EU general budget and the pension scheme liabilities match or reconcile.

The idea of using some discount rate to value these liabilities contains an implicit assumption, that these liabilities will remain with the scheme, in Europe. In that circumstance, the EU needs to be content that the sum paid is sufficient to earn the further returns necessary to meet these pensions when due. In commercial, private sector terms this is equivalent to the pricing of a bulk annuity buy-out. The terms under which these liabilities were generated are no longer relevant (for a fuller discussion of private sector DB funding issues, see here.

The scope for dispute over the calibration of the discount rate is obvious. However, there is a simple solution which obviates the need for any discount rate: repatriate the liabilities and have the UK pay them when due, alongside the many other unfunded purely domestic civil service pensions.

There would be a difference in the covenant associated with these pensions if transferred; they would now be full faith and credit of the UK rather than jointly guaranteed by all the members states, but that difference is marginal in extreme. I do not believe that any member would choose to withhold their consent, if that really is needed, on such flimsy security grounds

This should appeal to the avid Brexiteers (of which I am not one) as it would lower that apparent cost of the Brexit process. Certainly, it would lower the amount of the ultimate cash payment to the EU, the Brexit bill. It would also mean that the Treasury and OBR could then value them as is their wont.