Pension carry forward

Pension carry forward lets you potentially pay more than your annual allowance into your pension. You can do this by carrying forward unused allowance from the three previous tax years to make contributions this year.

What is pension carry forward?

Pension carry forward rules let you pay in more than your £40,000 annual allowance and still get tax relief (if you have enough earnings in the current tax year). You do this by carrying forward any unused annual allowance from the last three tax years.

To use carry forward you need to have had a SIPP or other type of pension in place in each of the three years. But you don’t need to have made any contributions and your new contribution does not need to be paid into the same pension.

Carry forward for higher earners

Carry forward can be useful for higher earners affected by the tapered annual allowance introduced in April 2016. Anyone with an adjusted income of more than £240,000 a year now has their annual allowance reduced to as little as £4,000. But with carry forward they could contribute up to £120,000 extra in 2020/21 and still benefit from the Government’s tax relief.

How does it work in practice?

As an example of pension carry forward we can look at Mr Smith. He is a fictional investor in his 40s with a current salary of £260,000. He has made several pension contributions over the last few years:

Tax year	Pension contribution	Unused allowance
2017/18	£20,000	£20,000
2018/19	£10,000	£30,000
2019/20	£20,000	£20,000
2020/21	None so far	£30,000 (tapered annual allowance)
Total	£50,000	£100,000

Mr Smith can carry forward £70,000 of unused allowance from the past three tax years. If he uses his full £30,000 tapered annual allowance for 2020/21, he could contribute £100,000 this year and still receive tax relief.