Pension Carry Forward: Using Unused Annual Allowance for Large Contributions

For most pension savers contributing regularly through employment, the annual allowance is a background constraint they never need to think about. For those with irregular income, a career pivot, a high-earning year, or a late start on pension saving, carry forward is one of the most valuable tools available.

Carry forward allows unused pension annual allowance from the previous three tax years to be added to the current year, potentially enabling a very large pension contribution in a single year — reducing taxable income, shielding assets in the pension wrapper, and accelerating retirement savings.

The Annual Allowance: A Reminder

The annual allowance is the total pension input — employer contributions plus employee contributions — that can be made to registered pension schemes in a single tax year without triggering an annual allowance charge. The standard allowance is £60,000 in 2026–27.

Contributions above the annual allowance are subject to an annual allowance charge, which effectively claws back the tax relief on the excess. The charge is at your marginal rate of income tax and can be paid by the scheme (through a "scheme pays" mechanism for large excesses) or directly to HMRC.

Carry forward allows the current year's ceiling to be increased by adding unused allowance from the three previous years.

The Rules of Carry Forward

The carry forward rules are straightforward in principle but have several conditions:

1. Current Year Allowance Used First

In the year you wish to make a large contribution, you must use the current year's annual allowance in full before carry forward applies. The £60,000 for 2026–27 must be used before any carry forward from 2023–24, 2024–25, or 2025–26 can be applied.

2. Carry Forward in Order — Oldest First

When drawing on carried-forward allowances, you must use them in order of age — the oldest year's unused allowance first. This means: unused 2023–24 allowance is used before 2024–25, which is used before 2025–26.

3. Pension Scheme Membership Required

To carry forward unused allowance from a particular year, you must have been a member of a registered pension scheme during that year. Membership can be entirely passive — a £0 contribution — but must exist. A former employer's defined benefit scheme counts, as does an old dormant SIPP with no contributions. If you were never a member of any registered pension scheme in a prior year, you cannot carry forward from that year.

4. The Annual Allowance for Each Prior Year

The carry forward amount for each year is the annual allowance that applied in that year minus contributions made in that year.

Historical annual allowances:

• 2022–23: £40,000
• 2023–24: £60,000 (raised from £40,000 in the March 2023 Budget)
• 2024–25: £60,000
• 2025–26: £60,000
• 2026–27: £60,000

If no contributions were made in the three carry-forward years, the maximum carry forward available in 2026–27 would be:

• From 2023–24: £60,000
• From 2024–25: £60,000
• From 2025–26: £60,000
• Current year 2026–27: £60,000
• Total: £240,000

For a year in which the allowance was £60,000 (2023–24 onwards), maximum carry forward from that year is £60,000. For earlier years when it was £40,000, the maximum from that year was £40,000.

Worked Example: The Large-Earnings Year

Jessica has been self-employed since 2020 and has made minimal pension contributions — £5,000 in 2023–24, nothing in 2024–25 or 2025–26. She has been a SIPP member throughout. In 2026–27, she wins a major contract and earns £180,000.

Her carry forward analysis:

• 2023–24: allowance £60,000 − used £5,000 = £55,000 carry forward
• 2024–25: allowance £60,000 − used £0 = £60,000 carry forward
• 2025–26: allowance £60,000 − used £0 = £60,000 carry forward
• 2026–27 current: £60,000
• Total available: £235,000

However, Jessica's total earnings are £180,000 — contributions attracting tax relief cannot exceed her earnings. She can contribute up to £180,000, claiming tax relief at 40% on the amount above the basic rate band.

At £180,000 of contributions at 40% higher rate relief: the pension contribution saves approximately £72,000 in income tax (the higher rate relief element), in addition to the 20% basic rate relief built into the gross contribution mechanism.

Carry Forward and the Tapered Annual Allowance

The tapered annual allowance (TAA) applies to high earners. It reduces the annual allowance for those with:

• Adjusted income above £260,000 (broadly: total income plus employer pension contributions plus other add-backs)
• Threshold income above £200,000 (income before pension contributions)

For every £2 of adjusted income above £260,000, the annual allowance reduces by £1, down to a minimum of £10,000.

The interaction with carry forward is important and often misunderstood:

The amount you can carry forward from a tapered year is the tapered amount — not the standard £60,000.

If your adjusted income in 2024–25 was £300,000, your annual allowance in that year was not £60,000 — it was a tapered amount. Excess adjusted income of £40,000 (£300,000 − £260,000) reduces the AA by £20,000, giving an AA of £40,000. If you made no contributions in 2024–25, you can carry forward only £40,000 from that year, not £60,000.

For those who have consistently had very high incomes, carry forward may be substantially less useful than it appears on first inspection — because the carried-forward amounts from tapered years are the smaller, tapered amounts.

What Carry Forward Cannot Do

Exceed earnings: Contributions attracting tax relief cannot exceed 100% of relevant UK earnings in the contribution year. Carry forward does not override this. You can increase the annual allowance ceiling through carry forward, but if your earnings are below that ceiling, the earnings cap binds first.

Create tax relief on non-UK earnings: Carry forward does not help someone with foreign income that is not subject to UK income tax. The contribution can be made up to the carry forward ceiling, but tax relief is only available on earnings that have been taxed in the UK.

Assist those subject to MPAA: The Money Purchase Annual Allowance (£10,000) applies once you have flexibly accessed any pension. The MPAA replaces the standard annual allowance for money purchase contributions — and carry forward does not apply to the MPAA. Once you have triggered the MPAA, you are stuck at £10,000 for money purchase contributions. Carry forward can still apply to defined benefit accrual (which has its own limit).

Work backwards: You cannot carry forward allowance from a year more than three years in the past. The window is always the three preceding tax years.

Planning Uses of Carry Forward

Business sale year: An entrepreneur who sells a business in a high-income year and receives an earnout or employment-based payment may have scope for large pension contributions using carry forward. This must be carefully structured — the sale proceeds as capital gain do not generate pension contribution capacity; earned income in the year does.

Bonus year: A professional who receives a very large bonus in a particular year — a partnership admission payment, a long-term incentive plan vesting, or a large commission — can use carry forward to maximise the pension contribution in that year and shelter income at marginal rates.

Return from abroad: A UK national who has been abroad and had low pension contributions for several years, who then returns to the UK with high UK earnings, may use carry forward to make accelerated contributions in the first high-earning years back.

Employer pension contributions: Employer contributions count towards the annual allowance and also benefit from carry forward. For owner-managed business directors, structuring employer contributions in a high-profit year using carry forward can be extremely tax-efficient.

How Global Investments Can Help

Global Investments advises clients on pension contribution strategy, including the optimal use of carry forward in high-earning years, business sale situations, and return-to-the-UK scenarios. We calculate the precise carry forward available, model the tax saving, and ensure contributions are structured correctly.

For internationally mobile clients, we also address the interaction between carry forward and non-UK earnings — ensuring that relief is only claimed on qualifying UK income and that the contribution mechanics are correct.

Tax rules and annual allowances can change. This guide reflects the position as at 2026. The value of tax relief depends on individual circumstances and the rate of income tax paid. Pension investments can fall as well as rise in value. Seek regulated financial advice before making large pension contributions.