How to Use Carry Forward Rules to Supercharge Your Pension
If you’ve had a good run of earnings but haven’t been maxing out your pension contributions (tut tut), don’t panic. The carry forward rules are here to save the day. Think of them as a second chance for your pension, but with a generous sprinkle of tax relief. Here’s how it works.
What Are Carry Forward Rules?
Carry forward lets you roll over unused annual pension allowances from the past three tax years. It’s like finding forgotten money in your bag, but way more lucrative.
Annual Allowance: The standard is £60,000 for 2025/26.
Eligibility: You need earnings equal to or greater than your contributions, and you must have been a member of a pension scheme during the carry forward years.
Caveat: You must have used the current tax years allowance first before looking back.
Step-by-Step Guide
1. Check Your Unused Allowances
Dig out your pension contributions for the last three years. Any unused allowance is up for grabs.
Example:
2021/22: Contributed £30,000 of £40,000 allowance = £10,000 unused.
2022/23: Contributed £25,000 of £60,000 allowance = £35,000 unused.
2023/24: Contributed £40,000 of £60,000 allowance = £20,000 unused.
Total unused allowance: £65,000.
2. Calculate Your Maximum Contribution
Add your unused allowances to this year’s £60,000. In this example, you could contribute up to £125,000 in 2024/25.
3. Ensure Sufficient Earnings
Your contributions can’t exceed your earnings. If you’re earning £80,000, that’s your limit, regardless of carry forward eligibility. Unless, of course, you’re making a company pension contribution as they are not limited by earnings. However, in this article we are looking at personal contributions so I suppose that’s neither here nor there!
4. Make the Contribution
Pump the funds into your pension via your employer or directly into a personal scheme. Higher or additional-rate taxpayers can claim extra relief through self-assessment.
Benefits of Carry Forward
Maximise Tax Relief: High earners can reclaim up to 45% tax relief.
Catch Up Quickly: Perfect if you’ve had fluctuating income or skipped contributions.
Reduce Taxable Income: Contributions can bring you below key thresholds, like the additional tax rate or child benefit charge.
Common Pitfalls to Avoid
Over-Contributing: Exceeding your limit triggers an annual allowance charge. Not fun.
Forgetting Deadlines: Carry forward only applies to the last three tax years, so don’t miss out.
Ignoring Pension Caps: The Money Purchase Annual Allowance (£10,000) may restrict your contributions if you’ve accessed your pension pot.
Tapering: If your earnings have exceeded certain thresholds, then what you can pay in each year is reduced.
Conclusion
The carry forward rules are a gift for anyone playing catch-up with their pensions. They let you supercharge your retirement savings while enjoying some of the best tax reliefs around. So don’t leave that money sitting on the table. Future you will thank you.
p.s. not advice obvs!