With the end of the tax year close on the horizon, now is the time to ensure that you have taken full advantage of your available allowances and tax reliefs. These can be invaluable when it comes to planning smartly around taxes.
One opportunity many people overlook is the pension ‘carry forward’ rule – a mechanism that allows you to use unused pension allowances from the previous three years to boost your tax-efficient pension savings and reduce potential tax charges.
Here’s how carry forward works, and how it could benefit you. This article reflects UK pension rules as they apply for the 2025/26 tax year.
What is pension carry forward?
Pension carry forward allows you to use any unused pension contribution allowance from the previous three tax years, in addition to the current year’s allowance. This combines to create a higher annual allowance for tax relieved pension contributions, which could maximise your opportunity for tax-efficient pension saving.
Carry forward is particularly useful if:
- Your income has increased recently
- You have received a bonus or windfall
- You are approaching retirement and want to strengthen your pension
- You have not regularly maximised pension contributions in the past
How does the annual allowance work?
Each tax year you have a limit on how much you can contribute into your pension and still receive tax relief. This limit is known as the annual allowance. For most people, the standard annual allowance in 2025/26 is £60,000.
Your pension input amount counts towards this limit, including employer contributions and the gross amount of personal contributions (including basic rate tax relief where applicable). If you exceed this allowance without available carry forward, you may face an annual allowance tax charge.
Who can use the carry forward rules?
To use carry forward in a tax year, you must:
- Have made pension contributions in the current tax year that fully use your available annual allowance
- Have been a member of a UK registered pension scheme in each of the earlier tax years you want to use; and
- Not have triggered the Money Purchase Annual Allowance (MPAA), which can apply if you have accessed your pension flexibly and reduces how much you can contribute going forward. Importantly, the unused allowance can only be used after you’ve used the current year’s allowance – you can’t skip the current year to dip directly into prior years.
How does this work in practice?
As an example:
Evelyn earns £180,000 and wants to make a large pension contribution before 5 April 2026.
- In 2025/26, she contributes £60,000 (using the full current allowance)
- In 2024/25, she contributed £40,000
- In 2023/24, she contributed £35,000
- In 2022/23, she contributed £20,000
This leaves her with:
- £20,000 unused from 2024/25
- £25,000 unused from 2023/24
- £20,000 unused from 2022/23
Once these unused allowances are carried forward, Evelyn could contribute a further £65,000 in 2025/26 without triggering an annual allowance tax charge, giving total potential contributions of £125,000 for the tax year. This allowance, as with many others, operates on a ‘use it or lose it’ basis – that £20,000 extra allowance from 2022/23 will disappear once we hit 6 April 2026 and the three-year period rolls on.
Things to consider
There are a few caveats and rules to consider when looking to use the carry forward allowance:
1. Earnings Test
You can’t receive tax relief on more than 100% of your earnings in a tax year for personal contributions. So, even though carry forward can boost your allowance, you still need sufficient relevant earnings to justify the contributions you make.
This earnings limit only applies to personal contributions. Employer contributions are not limited by your earnings.
For example, if you are contributing £75,000 of your own money (with the remainder from employer contributions), you need at least £75,000 of relevant earnings to qualify for full tax relief.
2. Tapered Annual Allowance
If your income is high (e.g., adjusted income above £260,000), your annual allowance may be tapered down below £60,000. If this applies, your available carry forward from those years will be based on the reduced allowances that applied in those years.
3. Money Purchase Annual Allowance (MPAA)
If you have flexibly accessed your pension, the Money Purchase Annual Allowance (MPAA) may be triggered. This reduces your annual allowance for defined contribution pensions to £10,000 and carry forward cannot be used to increase this limit.
Practical steps you can take before the tax year ends
- Review Your Contributions: Check your pension statements for the current year and the past three years to identify any unused annual allowance.
- Check Relevant Earnings: Make sure your earnings support the level of contributions you plan to make.
- Consider Taper and MPAA: If you’re a higher earner or accessing pension benefits, seek tailored advice on how these rules affect you.
- Act Early: Making contributions before 5 April ensures they count in the current tax year.
- Speak to a financial adviser: Pension tax rules are complex and can appear contradictory in places. A regulated financial adviser can help you to fully understand your position and model your carry forward and contribution strategy to avoid unwanted tax charges.
Carry forward is a powerful tool for pension planning, particularly as the tax year end approaches. It offers an opportunity to increase pension contributions, boost retirement savings, and manage tax liabilities effectively.
Since you can’t get back any unused allowances once they fall outside of the three-year window, it may be in your best interest to use them while you can if you are able.
If you’re unsure how these rules apply to you, it’s wise to speak with a financial adviser who can help align your pension planning with your broader financial goals.
To find out how much pension allowance you can still use before the tax year ends, book your free guidance session.
