Can I carry forward any unused pension annual allowance?

I’ve read that I can maximise my pension contributions this tax year by using something called pension carry forward. How does pension carry forward work and how much of my pension allowance can I carry over?

Question asked by Ms D Clayborne
Are You Pension Happy?
Call us on 02084327334
I know how much my pension is worth
I know how much my pension costs
I have clear financial goals for my retirement

Answered by Michael Englefield

 Utilising any unused pension annual allowance

Firstly, how much you can contribute to your pension in any given tax year and still get tax relief is known as the annual pension allowance.

The annual pension allowance in the 2017/18 tax year is capped at a gross figure of ¬£40,000 for most people ‚Äď that’s including HMRC’s contributions in the form of tax relief.

Remember, to pay the maximum ¬£40,000 annual allowance into your pension, you’ll have to have sufficient earnings to justify the maximum contribution.

While you can pay more into your pension than the maximum yearly cap, doing so leaves you open to a tax charge at your highest marginal rate on any payments above the threshold.

If you’d like to work out how much your pension annual allowance is, the Drewberry annual pension allowance calculator¬†does all the calculations for you.

Tapered annual pension allowance for high earners

Higher earners could have their annual pension allowance tapered down to £10,000.

From April 2016, anyone earning £150,000 or more will see their annual pension allowance taper off by £1 for every £2 they earn above £150,000 (which includes pension contributions, bonuses, interest from savings and dividends etc.) This is subject to a maximum tapering of £30,000.

As such, anyone earning ¬£210,000 or more from the 2016/17 tax year onwards has their yearly pension allowance tapered down to just¬†¬£10,000. This tapering of the maximum pension contribution threshold is also taken into account in Drewberry’s annual pension allowance calculator.

 

What is pension carry forward?

Pension carry forward lets you roll over unused annual pension relief from the past three tax years into the current tax year. So you effectively get to make up to four years of pension contributions in one year.

Below is a¬†table of the yearly pension allowances from the three previous tax years. Assuming you’ve made no pension contributions at all in any of the past three tax years,¬†you can¬†carry through an additional pension allowance of ¬£120,000 into 2016/17 and put this into your pension, on top of 2016/17’s allowance of up to ¬£40,000.

Historic Annual Pension Allowances

Tax Year

Maximum Yearly Pension Allowance

2014/15

£40,000

2014/15

£40,000

2015/16

£40,000

However, you can only contribute 100% of your annual earnings into a pension in any one tax year. So to take full advantage of pension carry forward¬†in 2016/17, you’d have to be earning at least ¬£170,000.

Can you carry through unused pension allowances from previous years?

And if you’ve consistently been earning ¬£170,000 then¬†because of the tapering of the yearly allowance this tax year for those earning over ¬£150,000, your yearly pension allowance in 2016/17 would be reduced to ¬£30,000 in both 2015/16 and 2016/17.

As such, the maximum annual pension contribution you could make in the 2016/17 tax year with a salary of £170,000 per annum would be £140,000.

This would be made up of:

  • ¬£40,000 from 2014/15
  • ¬£40,000 from 2015/16
  • ¬£30,000 from 2016/17 (because of the tapered annual allowance)
  • ¬£30,000 from 2017/18 (because of the tapered annual allowance).

As you can see, it’s a fairly complicated area. Your pension contribution threshold for the 2016/17 tax year¬†is now determined by your income, as well as how much you’ve contributed to your pension pot over the past three tax years.

Again, Drewberry’s pension annual allowance calculator takes all of the work out of calculating this figure and will allow you to easily see how much of your pension allowance you can carry back from previous tax years.

 

Need pensions advice?

Without expert help it can be difficult to keep on top of your tax allowances and ensure you are maximising your income. If you need pension advice and help with your annual allowance then please do not hesitate to pop us a call on 02084327333 or email wealth@drewberry.co.uk.

Pensions
 
Pension annual allowance calculator
 
Pension annual allowance
 
Pension carry forward
 
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
Start your journey today...
  Find out how a Drewberry financial adviser can help you reach your destination by making the most of your finances.
Call us on 

Frequently Asked Pensions Advice Questions

 
I’m looking to start up a pension, but all I can seem to find are defined contribution pensions....
 
I want to make sure that I get the most out of my pension, how can I compare different plans to help...
 
After a long career where I’ve moved around a lot, I’ve stacked up quite a few different...
 
I realise that I’ve been very fortunate with my retirement income, but my son’s new little...
Need Help? Live chat now and get an instant answer from our Experts...

Neil
Pensions

Victoria
Insurance
Our Latest Reviews
Martin Johnson
24/04/2019

A simple policy well explained good impartial advice and knowledge done with a smile! Many thanks.

Julia Bickley
19/04/2019

I found the service very friendly, professional and those I spoke to were clearly knowledgeable and explained things in an appropriate way. Great communication, and very personable staff. I would use again without a doubt.

Valerie Graham
17/04/2019

Excellent ‚Äď very helpful and knowledgable. No sell, just education and assistance. Would highly recommend!

We are rated 4.9/5 based on 2159 independent client reviews.
To read more of our independent client reviews click here →
REVIEWS
EXCELLENT
4.92 / 5 Average
2159 Reviews
W Liu
Overall Rating
I am a customer from US. We just set up UK subsidiary. We need some help with insurance plans there. Drewberry is very helpful, especially Nadeem. He is great
V Mashru
Overall Rating
Have dealt with Robert Harvey for many years now for my insurance needs. Always incredibly helpful and finds the right cover that’s appropriate for me. Nothing is ever too much. I appreciate it he help and advice.
J Norbury
Overall Rating
Jake Beale was really professional, helpful and informative.
I Capital Ltd
Overall Rating
Nadeem Farid was very helpful and consistent in setting up our company group insurance. service was efficient at all times. thank you
R Elliott
Overall Rating
Excellent knowledge and support. Also always available which was refreshing