Carry forward explained

Providing certain conditions are met, the carry forward rules allow an individual to use unused annual allowances from the three previous tax years to increase the overall annual allowance available to them in the current tax year.

Watch the bitesize video now or scroll down to read through the key talking points.

Key insights about carry forward

What is carry forward?

Carry forward allows savers to contribute more than the annual allowance without incurring tax charges. Through carry forward, contributions that exceed the annual allowance in one tax year can use up unused annual allowance from the three previous tax years.

Who is eligible to use carry forward?

To make use of carry forward, the individual must have fully used up their current year's annual allowance or will have by the end of the tax year. The individual must have been a member of a UK-registered pension scheme at some point during the year being carried forward from. A member includes: an active member, a deferred member, a pension credit member, or a pensioner member.

Is there a limit on the tax relief you can receive on carry forward contributions?

It’s important to understand that carry forward only applies to the annual allowance and not tax relief entitlement. Tax relief on member contributions is limited to 100% of a member’s relevant UK earnings in the tax year the contribution is paid, and earnings from previous years cannot be carried forward. This means that an individual who has maximum carry forward available would only be able to make a member contribution of £200,000 (current tax year and three previous years' unused allowance) if they also had the earnings in the current tax year to support it.

Can you still use carry forward if you are affected by the tapered annual allowance?

Where an individual with a high income is restricted by the tapered annual allowance, carry forward is still available, so any unused annual allowance can still potentially be carried forward from the previous three tax years. Where an individual’s annual allowance has been reduced by application of the taper in previous years, only the balance of the tapered annual allowance can be carried forward to future tax years.

Carry forward and the Money Purchase Annual Allowance (MPAA)

Once someone has flexibly accessed their pension savings, they trigger the MPAA, restricting their annual allowance to £10,000. Once the MPAA is triggered, the option to use carry forward in relation to money purchase contributions made after the trigger date is lost.

More Bitesize Technical

View the full Bitesize Technical series on pension contributions, as well as our two stand-out videos on transitional arrangements and testing pension benefits, via Techcentre.