Negative value of pension Input amount (DB), how does this affect PP contributions?

stoozie1

Is the input amount understood to be nil, or does the negative value theoretically allow more contributions?

Is this the same both in year and when used as a factor in calculating cary-forward?

Many thanks and apologies if this is very straightforward.

dunroving

How do you end up with a negative amount? I think I came across this when my DB conditions changed, but it wasn't actually negative, it was that the formula that is used when the conditions remain constant doesn't work properly the first year after the conditions change.

stoozie1

I'm not 100% sure even though I follow the logic of the workings the pension service have sent. I'm guessing that the fact my OH was off work for 6 months with a fractured femur was a contributory factor.

stoozie1

Just a quick bump in case anyone who knows more is around on the weekend.

hugheskevi

Is the input amount understood to be nil, or does the negative value theoretically allow more contributions?

If the input for the arrangement is negative, it is treated as nil.

Reference: this HMRC link (it is about 2015/16 when there were two pension input periods, but the same applies in other years)

The increase in the value of your promised benefits is the difference between the value of your benefits immediately before the start of the combined pension input period (the opening value) and the value of your benefits at the end of the combined pension input period (the closing value). The difference is found by taking away the opening value from the closing value. If the difference is a negative amount then your pension savings for the arrangement is nil.

Is this the same both in year and when used as a factor in calculating cary-forward?

Yes, as the recorded amount is zero, and that is what is used in all cases thereafter.

How do you end up with a negative amount?

It isn't uncommon when salary increases by less than inflation and there is long-service.

The starting value of the pension is increased by inflation, and as salary doesn't increase much or even at all, the closing value can be lower than the inflation-adjusted opening value even if there is an additional year of service. In the case of public service pension services where members have moved to CARE schemes but previous final salary service remains linked to salary, there isn't even an additional year of service which makes negative pension inputs more likely.

stoozie1

Brilliant explanation, thank you. That clears things up.

dunroving

hugheskevi wrote: »

<<snip>>

The starting value of the pension is increased by inflation, and as salary doesn't increase much or even at all, the closing value can be lower than the inflation-adjusted opening value even if there is an additional year of service. In the case of public service pension services where members have moved to CARE schemes but previous final salary service remains linked to salary, there isn't even an additional year of service which makes negative pension inputs more likely.

Yes, this is what happened in my case (that I indirectly referred to earlier). The USS changed from final salary to Career Average, but the prior benefits were preserved (i.e., CARE only applied to the contributions since the change was implemented).

I can't recall the exact details of the situation, but the formula used pensionable salary at the beginning of the PIP (Point A) and pensionable salary at the end of the PIP (Point , and subtracted A from B. As the latter was smaller than the former, this resulted in a negative value.

At the time I was really pushing the envelope in terms of maximizing pension contributions, as I was planning to retire early. However, it didn't make any sense to me that the value of my DB pension at point (B) would be less than at Point (A), as the pension at the end of the PIP was larger than the pension at the beginning of the PIP (because I had an additional year of contributions).

Anyway, eventually USS was able to give me a correct estimate, that was a positive value. Water under the bridge now, but I could potentially have contributed more if the PIP was actually negative (or, effectively, zero).