Using Pension Carry Forward with Employer Contributions: A Practical Guide

Carry forward is one of the most powerful and underused pension planning tools available to UK taxpayers. It allows an individual to use unused annual allowance from the three previous tax years — potentially enabling pension contributions of up to £180,000 in a single tax year above the current year's allowance. When combined with employer contributions — particularly for company directors and business owners — the planning possibilities become significant.

This guide explains the mechanics of carry forward in the context of employer contributions, the common scenarios where it applies, and the pitfalls that can catch people out.

The Annual Allowance Refresher

The annual allowance (AA) limits the total pension contributions that can receive tax relief in any given tax year. From 2023/24, the standard annual allowance is £60,000. This covers:

• Personal contributions (your own contributions)
• Employer contributions (made by your employer or your company)
• Salary sacrifice contributions (treated as employer contributions)

All of these are combined into your "pension input amount" for the tax year and tested against the annual allowance. If the total exceeds the AA, an annual allowance charge arises — effectively clawing back the excess tax relief.

The key point: the annual allowance is not just your contributions; it is the total of all contributions into your money purchase (defined contribution) pension in the year.

What Carry Forward Allows

If you did not use your full annual allowance in the previous three tax years, you can carry the unused portion forward and add it to the current year's allowance. The current year's full AA must be used first before carry forward kicks in.

Maximum potential annual allowance with carry forward (2025/26):

• Current year: £60,000
• Carry forward from 2024/25: up to £60,000
• Carry forward from 2023/24: up to £60,000
• Carry forward from 2022/23: up to £60,000
• Total: up to £240,000

In practice, carry forward available equals the AA that applied in each prior year minus the pension input amount in that year. Prior years may have had different AAs (the 2022/23 AA was £40,000; the 2023/24 AA was £60,000), and prior contributions reduce what is available to carry forward.

Important: you must have been a member of a registered pension scheme in the year from which you are carrying forward. You do not need to have contributed, but you must have been a member.

Employer Contributions and Carry Forward

Employer contributions count towards the annual allowance in the same way as personal contributions. This has two important implications for carry forward:

First: employer contributions made in previous years reduce the carry forward available from those years.

Second: in the current year, employer contributions count against the total annual allowance (including carry forward). If your company makes a £100,000 employer contribution and you have £80,000 of carry forward available, the total permitted pension input for the year is £60,000 (current year) + £80,000 (carry forward) = £140,000. A £100,000 employer contribution comfortably fits within this.

Company Director Scenario

Company directors who also own their business have considerable flexibility. The company can make employer pension contributions on the director's behalf at any time, subject to the annual allowance and the commercial justification test (contributions must represent a reasonable business expense in line with the director's duties and remuneration).

Worked Example — Business Sale:

A director, age 54, is about to sell their company for £1.5 million. They have a SIPP with £300,000 in it and have contributed only £5,000/year for the past three years. They want to maximise pension contributions before completing the sale.

Prior year pension inputs:

• 2022/23: £5,000 contributed, AA was £40,000 → carry forward available: £35,000
• 2023/24: £5,000 contributed, AA was £60,000 → carry forward available: £55,000
• 2024/25: £5,000 contributed, AA was £60,000 → carry forward available: £55,000

Total carry forward: £35,000 + £55,000 + £55,000 = £145,000

Current year (2025/26) AA: £60,000

Total permitted pension input in 2025/26: £60,000 + £145,000 = £205,000

The company can make an employer contribution of up to £205,000 to the director's SIPP in 2025/26 (assuming no other pension contributions have been made in the year). The contribution is a deductible business expense for corporation tax. The funds enter the SIPP gross — no income tax on the director, and no National Insurance for employer or employee.

This transfers £205,000 from the company (which would otherwise have been taxed at 25% corporation tax and then dividend-taxed when extracted) into the director's pension tax-free, providing an immediate tax saving of approximately £51,250 (25% corporation tax avoided).

The Order Rule: Current Year First

A common mistake when planning carry forward is forgetting that the current year's allowance must be fully used before carry forward applies. If total pension input in the year (personal plus employer) does not reach £60,000, the surplus is simply unused for that year and the carry forward from prior years does not reduce the AA charge — it merely supplements what is available.

In the business-sale example above, if the company only contributes £40,000, there is no need to use carry forward at all — the contribution fits within the current year's allowance. Carry forward only comes into play when the total input exceeds £60,000.

Salary Sacrifice and Carry Forward

Under a salary sacrifice arrangement, the employee gives up a portion of their contractual salary in exchange for an employer pension contribution. For AA purposes, salary sacrifice contributions are employer contributions. They count against the annual allowance — and they also affect adjusted income for tapered annual allowance purposes (see the separate guide on threshold and adjusted income).

A director who operates salary sacrifice can use carry forward in exactly the same way: the sacrificed salary (converted to employer contributions) counts against the AA and carry forward limits.

Self-Employed Individuals

The self-employed do not have an employer to make contributions on their behalf, but they can still use carry forward for their own personal pension contributions. The carry forward calculation is identical: unused AA from the prior three years, subject to the condition that they were a member of a pension scheme in each year.

Self-employed individuals who have had years with very low or no contributions — perhaps because of cash flow constraints — may accumulate significant carry forward. A profitable year or a property sale can then be matched with a large pension contribution.

However, self-employed personal pension contributions are limited to 100% of UK earnings in the relevant tax year. If a self-employed individual has earnings of £50,000, they cannot make a personal contribution of £200,000 even if carry forward allows it — their personal contribution limit is £50,000 (though in practice, contributions net of basic-rate tax relief are limited to 100% of net earnings).

This earnings cap does not apply to employer contributions. If the self-employed person operates through a limited company, the company can make employer contributions without the individual earnings cap, subject only to the AA and carry forward limits.

Carry Forward After the Money Purchase Annual Allowance (MPAA)

Once the MPAA is triggered (by taking flexible pension income), the picture changes significantly. The MPAA caps money purchase contributions at £10,000. Carry forward cannot be used to increase the MPAA. The unused annual allowance can only be carried forward and applied to defined benefit accrual — and most individuals subject to the MPAA have only DC pensions.

This means: once you have triggered the MPAA, you have permanently lost the ability to use carry forward for money purchase pension contributions above £10,000. This is one of the strongest reasons not to access pension benefits early or informally, even where technically possible (for example, some small pension pots can be accessed without triggering the MPAA — seek advice on this distinction).

Record-Keeping

HMRC requires individuals to self-assess any annual allowance charge. If you are planning to use carry forward — particularly in a business-sale year or following a change in employment — maintain records showing:

• Pension scheme membership in each carry forward year
• Pension input amounts in each carry forward year (from annual benefit statements or confirmation from the scheme)
• The basis on which employer contributions have been made

Pension schemes are required to provide pension savings statements automatically to members whose pension input in a scheme exceeds the standard annual allowance of £60,000 in a year (or who have triggered the MPAA with money purchase input above £10,000). Any member can also request a statement. If you do not receive a statement automatically, request one from your scheme administrator before the tax return deadline.

This guide provides general information only. Tax rules change and individual circumstances vary considerably. The carry forward rules are subject to conditions including prior scheme membership and restrictions where the MPAA or tapered annual allowance applies. Always seek regulated financial advice before making large pension contributions.

How Global Investments Can Help

Global Investments works with business owners, directors, and high earners to maximise pension contributions in years of high income or significant capital events. Our advisers model carry forward scenarios across multiple years, coordinate employer and personal contributions, and ensure that pension planning is integrated with wider tax and business-exit strategy.

If you are approaching a business sale, bonus year, or other income event and want to understand how carry forward can work for you, contact our advisory team to arrange a review.