Pension carry-forward can allow an individual to make pension savings above the current year’s annual allowance without an annual allowance charge, but the calculation is not simply four years of unused £60,000 allowances added together. Each earlier tax year must be reconstructed using the annual allowance that actually applied to that individual, their pension input for that year and whether they satisfied the pension scheme membership condition.
For 2026/27, the current annual allowance is £60,000 and potential carry-forward years are 2023/24, 2024/25 and 2025/26.
How pension carry-forward is calculated
The current year’s annual allowance is used first. If pension input exceeds that amount, unused annual allowance from the previous three tax years is then used, starting with the earliest available year.
The pension carry-forward rules operate automatically. A taxpayer does not make a separate election to HMRC simply to use carry forward, although an annual allowance charge still has to be reported where total available allowance is insufficient.
Suppose an individual contributes or accrues £120,000 of pension input in 2026/27 and is entitled to the full £60,000 annual allowance. The first £60,000 uses the current year’s allowance. The remaining £60,000 is then tested against unused allowance from 2023/24 first, followed by 2024/25 and finally 2025/26.
Unused allowance from an older year disappears if it is not used before it falls outside the three-year carry-forward window.
Scheme membership is required but contributions are not
A person does not need to have contributed to a pension during an earlier year to carry forward unused annual allowance from that year. They must, however, have been a member of a registered pension scheme at some point during the relevant year.
This distinction is important for individuals who joined an occupational scheme but made no personal contributions, deferred pension saving during a career break or retained a pension arrangement without active contributions.
The membership condition is considered separately for each carry-forward year. If the person had no qualifying pension scheme membership at all during one of the three earlier tax years, unused annual allowance cannot ordinarily be generated for that year.
Pension carry-forward when earnings differ from pension input
Annual allowance and tax relief on personal contributions are separate limits.
Carry forward may increase the amount of pension input that can be made without an annual allowance charge, but it does not increase the limit on Income Tax relief for personal contributions. An individual’s relievable personal contributions are generally restricted by relevant UK earnings, subject to the separate £3,600 gross minimum-relief rules.
An individual with £70,000 of relevant earnings cannot necessarily obtain tax relief on a £150,000 personal pension contribution merely because sufficient annual allowance has been carried forward.
Employer contributions operate differently. They are not limited by the employee’s relevant earnings in the same way, although they enter the employee’s annual allowance calculation and the employer must satisfy its own Corporation Tax deduction rules.
This distinction is crucial for owner-managed companies where pension planning may involve both personal and company contributions.
Each earlier year’s actual allowance must be reconstructed
For many individuals, the available allowance in an earlier year will not simply be £60,000.
A taxpayer affected by the tapered annual allowance may have had a reduced allowance. A person who had already triggered the Money Purchase Annual Allowance may also have different restrictions. The calculation therefore needs the actual allowance applicable in each earlier year.
The calculation of unused annual allowance confirms that where tapering applied in an earlier year, unused allowance is measured against that reduced allowance rather than against the standard figure.
Defined benefit pension input must also be included. A professional may believe that only £10,000 was contributed personally while their statutory pension input amount was much higher because of growth in promised benefits.
Carry forward does not need to be shown where no charge remains
Where carry forward completely eliminates the annual allowance excess, there is generally no separate entry on the tax return merely to claim carry forward. The taxpayer should nevertheless maintain a schedule showing the annual allowance, pension input and unused amount for each year.
Where the remaining pension input still produces an annual allowance charge, it should be incorporated into the relevant Self Assessment tax return.
For individuals with tapered allowances, changing employment, NHS or other defined benefit accrual, employer contributions or missing historic pension statements, specialist tax advice should reconstruct all four years before a significant contribution is made.
Disclaimer: This article is provided for general guidance only and does not constitute personal tax, legal or financial advice. The correct tax treatment depends on the specific facts, applicable legislation and HMRC practice at the relevant time. You should contact us for advice tailored to your circumstances before taking or refraining from any action.
