Glossary · UK
What is Carry Forward (Pension Annual Allowance)?
A rule allowing unused pension annual allowance from the previous three tax years to be added to the current year's £60,000 allowance, letting a high earner or windfall recipient make a larger tax-relieved contribution in one go.
Full Definition
Carry forward is the mechanism that lets someone contribute more than the standard £60,000 pension annual allowance in a single tax year without triggering an annual allowance tax charge, by drawing on any unused allowance from the three previous tax years. To use carry forward, the individual must have been a member of a registered pension scheme in each of the earlier years being drawn on (even if no contribution was actually made that year), and must first use up the current year's full annual allowance before any carried-forward amount from earlier years is applied, with the earliest available year's unused allowance used up first. Carry forward is most commonly used by someone who receives a one-off windfall -- a bonus, an inheritance, proceeds from selling a business, or simply a year with unusually high disposable income -- and wants to make a large single pension contribution while still obtaining full income tax relief on the whole amount, rather than being restricted to relief on £60,000 and facing a tax charge on the excess. It is also relevant for someone whose annual allowance is reduced by the tapered annual allowance, since a period of tapering in an earlier year fixes the unused allowance for that year at the lower, tapered figure rather than the full standard amount, which must be tracked separately from any earlier untapered years. Worked example: an individual earning a large bonus this year, who has made no pension contributions at all in the previous three tax years and had the full standard annual allowance available in each of them, could in principle contribute up to £60,000 for the current year plus up to £180,000 of unused allowance carried forward from the three earlier years -- a total of up to £240,000 -- provided their relevant UK earnings for the current tax year are at least equal to the total contribution, since tax relief on personal contributions is always capped at 100% of that year's earnings regardless of how much unused allowance carry forward makes available.