The pension carry forward rule explained

The pension carry forward rule explained

If you wish to make pension contributions that exceed your annual allowance, you may be pleased to hear that the pension carry forward rule could enable you to still qualify for tax relief.

This may be especially beneficial for those with irregular incomes like contractors and freelancers or anyone who wishes to make substantial contributions to their pension pot.

There are a few conditions in place you’ll have to meet to be eligible for carry forward, so if you need to benefit from it, it’s worth checking out the details.

Here is a quick guide to help you get a solid understanding of what the rule could mean for you.

What is pension carry forward?

The pension carry forward rule can enable you to contribute more than the annual allowance into your savings without having to pay charges or miss out on tax relief.

As it stands, you can put 100% of your earnings into your pension, as long as it doesn’t exceed £40,000, and still benefit from tax relief.

This allowance includes any contributions that were made by you or your employer, and it represents the total value of your pension pots (not including your state pension).

If you go over this threshold, you’ll have to start paying taxes on the excess, as it will be added to your total taxable income.

However, if you haven’t used your annual allowance in previous years, it may be possible to carry over the allowance to the current year under certain circumstances.

How does it work?

The rule works by utilising any unused allowance you may have accumulated over the last 3 years. If it’s been more than 3 years, you won’t be able to carry it over.

You are eligible for this rule as long as you were signed up to a pension scheme in the year that you wish to carry forward from, provided you have used up your entire allowance for the current tax year.

You don’t have to let HMRC know about this either; they take care of it for you.


calculate pension carry forward


Why you should make use of carry forward

If you are able to make use of this rule, you should think about contributing more to your pension through carry forward – essentially enabling you to save more money without having to pay tax.

This is a great way to maximise your tax efficiency when it comes to building and managing your pension pot.

For those of you whose threshold income (your net income for the tax year) is above £200,000, and your adjusted income (total income including pension contributions your employer pays) is over £240,000, you will have a reduced annual allowance which caps at £4000.

This is known as a tapered annual allowance. If this applies to you, it’s worth checking to see whether or not you can use the carry forward rule to negate any excess on your contributions.

For freelancers and those with irregular incomes, you could use this rule to take advantage of sudden spikes in payment you might receive. Say, for example, you earned £10,000 one year and £200,000 the next; you could make a larger pension contribution and still get the tax relief from when you earned less.

How to calculate carry forward

The quickest way of calculating how much carry forward you’re eligible for is to use an online calculator. There’s a good one available on the government’s website, so you should check it out for some more insight.

You will need to know a few details, like what type of pension plan you’re signed up for and how much money you’ve saved.

You can calculate this yourself if you know how much you contributed to your pension in the years you intend to utilise carry forward. By subtracting the amount you paid in from the annual allowance, the resulting number is the amount you’ll have to carry forward.

You can contact your pension provider if you’re unsure of the amount you paid in, and they should be able to help.


Carry forward is certainly worth making use of if you’re in the position to do so, as it can help you make the most out of your money and continue to grow your retirement fund.

If you have several pension schemes, it’s also worth thinking about consolidating your pensions to make them much easier to manage. iSIPP can help you combine your pensions into one easy to manage SIPP. Better still, you can manage your money completely online, allowing you to do away with cumbersome paperwork. Take a look at what we do here to find out how we can help you today.




The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.




Apply now


Subscribe to our newsletter