Pension information is based on current UK legislation. Pensions are regulated by the FCA and The Pensions Regulator. This is not financial advice — consider consulting an FCA-regulated financial adviser.
Contents
Pension carry forward is a powerful but underused tax relief. If you have spare cash and unused allowance, you could save significant tax.
How Carry Forward Works
The Basic Rule
Principle
Detail
Annual Allowance
£60,000 (2023/24 onwards)
Unused allowance
Can be carried forward
Carry forward period
3 previous tax years
Order of use
Current year first, then oldest year
Example
Tax Year
Allowance
Used
Unused
2023/24
£60,000
£10,000
£50,000
2024/25
£60,000
£15,000
£45,000
2025/26
£60,000
£20,000
£40,000
2026/27
£60,000
Current year
£60,000
Available 2026/27
£195,000
Who Can Use Carry Forward?
Requirements
Condition
Detail
Must have been in a pension scheme
In years you’re carrying from
Must have relevant UK earnings
In year of contribution
Contribution can’t exceed earnings
In the year you contribute
“In a Pension Scheme”
Counted As Being In a Scheme
Workplace pension (auto-enrolment)
Yes
SIPP/personal pension
Yes
Frozen/dormant pension
Yes (if open)
Only State Pension
No
Even a workplace pension with £0 contributions counts.
Carry Forward Calculator
Step-by-Step
Step
Action
1
Find your pension contributions for each of last 3 years
2
Calculate unused allowance each year
3
Add up available carry forward
4
Add current year allowance
5
Cap at your earnings
Example: High Earner Making Large Contribution
Tax Year
Annual Allowance
Total Contributions
Unused
2023/24
£60,000
£8,000
£52,000
2024/25
£60,000
£8,000
£52,000
2025/26
£60,000
£8,000
£52,000
2026/27 (current)
£60,000
-
£60,000
Total available
£216,000
If earnings are £150,000, can contribute up to £150,000.
Tax Relief on £100,000 Contribution
Tax Rate
Relief Claimed
Effective Cost
Basic (20%)
£20,000
£80,000
Higher (40%)
£40,000
£60,000
Additional (45%)
£45,000
£55,000
Annual Allowance History
Previous Years’ Allowances
Tax Year
Standard AA
Notes
2023/24
£60,000
Increased from £40k
2024/25
£60,000
2025/26
£60,000
2026/27
£60,000
If You Had Tapered Allowance
If Adjusted Income Over
Your Allowance Was
£260,000+ (2023/24 on)
Reduced by £1 per £2 over £260k
Minimum
£10,000
Your carry forward is based on YOUR allowance, which may have been tapered.
Tapered Annual Allowance
Who Is Affected
Income Test
Threshold
Threshold income
Over £200,000
AND Adjusted income
Over £260,000
Taper
£1 reduction per £2 over £260k
Minimum allowance
£10,000 (at £360,000+)
Adjusted Income Calculation
Item
Include
Taxable income
All sources
PLUS employer pension contributions
Added back
PLUS salary sacrifice
Added back
= Adjusted income
For taper test
Example: Tapered Allowance
Detail
Amount
Salary
£250,000
Employer pension
£30,000
Adjusted income
£280,000
Over £260,000 by
£20,000
Taper (£1 per £2)
£10,000 reduction
Your Annual Allowance
£50,000
Common Carry Forward Scenarios
Scenario 1: Bonus Year
Situation
Action
Normal salary: £80,000
£8k pension contributions
This year + £100k bonus
£180,000 total income
Carry forward available
£150,000
Contribution possible
£150,000 (capped by available)
Tax relief at 40%/45%
£60,000+
Scenario 2: Business Sale
Situation
Action
Business sold
Large capital receipt
Earnings from business
£200,000 in final year
Carry forward available
£180,000
Contribution possible
£180,000
Reduces tax bill significantly
Scenario 3: Inheritance/Gift
Situation
Action
Received inheritance
£200,000
Current earnings
£60,000
Carry forward available
£120,000
Maximum contribution
£60,000 (earnings cap)
Scenario 4: Catching Up
Situation
Action
Age 50, minimal pension
Want to catch up
Income
£100,000
Carry forward
£180,000 available
Can contribute
£100,000 (earnings capped)
Would need multiple years
To use all carry forward
How to Make the Contribution
Personal/SIPP Contribution
Method
Process
Pay into SIPP
Online transfer
Tax relief at source
Auto 20% added
Higher rate claim
Via Self Assessment
Employer Contribution
Method
Process
Ask employer
To make one-off contribution
No contribution limits
Just annual allowance
Full relief
Including employer NI saving
Salary sacrifice
Can be more efficient
Example: £100,000 Contribution Methods
Method
You Pay
In Pension
Tax Relief
Personal contribution
£80,000
£100,000
£20k auto + claim more
Employer contribution
£0 (salary reduced)
£100,000
No income tax or NI
Employer contributions avoid NI — potentially more efficient for large amounts.
Restrictions to Know
Money Purchase Annual Allowance (MPAA)
If You’ve Accessed Pension Flexibly
MPAA triggered
Only £10,000 allowance
Can’t carry forward
From pre-trigger years
Still have current year
£10,000
What Triggers MPAA
Trigger
Not a Trigger
Flexi-access drawdown (income taken)
Taking 25% tax-free cash only
UFPLS (uncrystallised payment)
Buying annuity
Taking taxable lump sum
Capped drawdown (pre-2015)
Tip
Don’t access pension flexibly if you might make large contributions.
Pension vs ISA for Large Amounts
If You Have £100,000 to Invest
Consideration
Pension
ISA
Tax relief
40-45%
None
Access
From 55/57
Anytime
ISA limit
£20,000/year
Takes 5 years
Tax on withdrawal
75% taxable
None
Pension wins for most higher rate taxpayers, but ISA provides flexibility.
Documentation Required
For Self Assessment
Evidence
Why
Previous years’ contributions
To calculate carry forward
P60s
Prove earnings
Pension statements
Confirm amounts
Employer records
For employer contributions
HMRC Checks
If HMRC Queries
Have Ready
Proof of pension membership
In carry forward years
Contribution amounts
Each year
Earnings
In contribution year
Key Takeaways
3 years carry forward — plus current year
Must have been in scheme — in years you carry from
Earnings capped — can’t exceed your earnings
Check tapering — if income over £260k
Employer contributions — may be more efficient
Don’t trigger MPAA — if planning large contribution