Carry forward

1. What is the Annual Allowance?

The standard annual allowance limits the total pension savings an individual can build in a tax year without incurring a tax charge. For most individuals, the standard allowance is £60,000.

It applies across all UK registered pension schemes. It also applies where a person is a member of an overseas pension scheme where either the member or the employer qualifies for UK tax relief.

Tapered Annual Allowance (TAA)

High earners may have a reduced annual allowance. Before calculating carry forward (see section 4), you must first work out whether a taper applied in each year being assessed.

Quilter’s TAA article explains how this works.

Money Purchase Annual Allowance (MPAA)

Once a person has flexibly accessed benefits, the MPAA applies to future contributions and into a money purchase scheme. Carry forward can no longer be used for money purchase pension scheme inputs.

Quilter’s MPAA article explains the trigger events and rules.

2. What counts against the annual allowance?

What counts against the annual allowance is the pension input amount. How to calculate the pension input amount difference depending on the scheme type.

The two main types are:

1. Defined contribution (DC): The pension input amount is the total contributions paid into the arrangement during the pension input period (the tax year), including employer, personal and third‑party contributions.
2. Defined benefit (DB): The pension input amount is the capitalised increase in the value of accrued pension benefits over the pension input period(tax year), using statutory formulas.

There are also the less common scheme types such as – cash balance and hybrid schemes. You can find guidance on calculating their pension input amounts by following the linked items.

3. What does not count towards the Annual Allowance?

• Investment growth within a pension
• Transfers between DC pensions
• State pension accrual
• Any pension savings in the tax year the member dies 
• Any pension savings in the tax year the member takes a serious ill health lump sum
• Pension credits from a pension sharing order

4. What is Carry Forward?

Carry forward allows individuals to use unused annual allowance from the previous three tax years. It helps avoid annual allowance charges where a pension input is unexpectedly high.

Carry forward can be used where the individual:

• Was a member of a registered pension scheme for the tax year you want to carry forward from (active, deferred or pensioner members all qualify)
• Has fully used the current tax year’s annual allowance
• Has sufficient relevant UK earnings if relying on carry forward for a large personal contribution

5. Step‑by‑Step: Using Carry Forward

Step 1: Confirm for each of the three previous tax years.

Step 2: Calculate the pension input amount for each year, taking account of tapering and the MPAA where relevant.

Step 3: Calculated the remaining unused annual allowance for each of those years. Any year where the pension input exceeded the annual allowance produces no carry forward.

Step 4: Use the annual allowance and carry forward in the following order:

• The current tax year
• The oldest of the three carry‑forward years
• The next oldest year
• The most recent year

Quilter has a carry forward calculator that can work out the maximum contribution that can be made whilst also taking into account any tapered annual allowance that applies.

 6. Historic Annual Allowances and Carry Forward

The table below shows historic annual allowances and the maximum that can potentially be carried forward for each year.

From 2008/09 to 2010/11, although the annual allowances were much higher, the maximum permitted for carry forward is capped at £50,000.

The 2015/16 tax year was split into two mini tax years due to transitional alignment of pension input periods. The pre‑alignment period carried an £80,000 allowance and the post‑alignment period had a £0 allowance, but up to £40,000 of unused pre‑alignment allowance could be carried forward into that period.