A recent article on pensions states: “You can contribute up to 100 percent of your annual income or £ 40,000 a year to a pension, whichever is lower. It is also possible to carry forward unused pension supplements from the last three years when completing the self-assessment form and to make additional payments. However, you must have at least the total amount of the contribution payment in the relevant tax year, unless your employer pays the contribution. “

I have been informed by various sources that the carry-over policy only applies to people earning £ 40,000 or more. Wealthy people are most likely to invest sums in pensions and use low / low contributions in previous years. But it would be pretty unfair if the low wage earners were denied the opportunity to do so.

My understanding is that someone who earns £ 60,000 could bring forward £ 40,000. Someone making £ 40,000 could bring forward £ 40,000 and someone making £ 25,000 could bring forward zero.

I would be grateful and delighted to know that I am wrong, and the real answer is that someone who makes £ 25,000 could bring forward £ 25,000 as long as they make it in the tax year in question.

Can you clear this up for me

P coatings

Gary Smith, Tilney’s Chartered Financial Planner, answers: The annual tax credit represents the maximum amount of tax-privileged pension financing that can be granted to a natural person in each tax year. While the standard annual tax credit is currently £ 40,000, it may be possible to add a higher contribution if you have unused tax allowances in the past three tax years by applying for an allowance. For high earners (who earn over £ 240,000 including employers’ contributions) their annual tax credit is reduced, with the annual tax credit being reduced to £ 4,000 for those who earn over £ 310,000. Once an individual has released income from a pension using flexible pension schemes, they will trigger the Annual Cash Purchase Allowance (MPAA) which limits pension funding to £ 4,000 (gross) per tax year with no carry-forward available.

The annual bonus schemes cover both personal and any employee contributions, and there are specific rules for personal contributions. If a person makes a personal contribution (and that could be funded from an inheritance, etc.), they can make the lower contribution:

  1. Your available annual allowance plus any lecture allowance or
  2. Your relevant net income (which is effectively your salary) or
  3. If the person does not have a relevant net income, a contribution of £ 3,600 (gross).

In practice this means that if someone earns £ 30,000 the maximum amount that they could personally contribute to a pension is £ 30,000 gross, although they may have a higher annual allowance. If they had triggered the MPAA, they could only contribute £ 4,000 (gross). When an individual makes a personal contribution, they receive a property tax credit on the contributions they make, which means they only have to contribute £ 24,000 to fund a £ 30,000 (gross) contribution (the equivalent of £ 6,000 in tax relief). Assuming that an individual with an income of £ 30,000 will only have to pay £ 3,486 income tax, the tax break received will exceed their personal income tax liability.

If the same person was a member of their employer’s pension scheme and the employer chose to pay £ 10,000 into their pension for them, the combined contributions of £ 40,000 would take full advantage of their available annual tax credit for that tax year. If the employer chooses to pay £ 15,000 into the pension, their combined contributions would be £ 45,000 and they would have to carry £ 5,000 over the past three tax years (subject to availability) to avoid an annual exemption tax burden.

In terms of the carry-forward regulation, this is only possible if you have fully exhausted the annual tax allowance for the current tax year. Using the three yield scenarios you cited, I will illustrate the presentation positions that are actually available to you:

  1. Individual with a salary of £ 60,000: The maximum amount that an individual could personally contribute to a pension would be limited to £ 60,000 gross, and this assumes that he or she has an unused carryforward from the past three tax years. Assuming this is the case, £ 40,000 would use their full annual allowance for the current tax year, with £ 20,000 carried over from the last three tax years. If their employer pays contributions for them too, they could carry forward more than £ 20,000 (subject to availability) to avoid annual tax exemption.
  2. Individual with a salary of £ 40,000: If the individual is only making personal contributions, they would not be able to carry forward any unused annual allowances as their contributions would simply use up their current annual tax year allowance (provided no MPAA was triggered). They could only claim the lecture if their employer paid additional contributions, which drove the cumulative contributions to over £ 40,000.
  3. Individual with a salary of £ 25,000: Under pension fund rules, this person can only personally deposit £ 25,000 (gross) and cannot carry forward any unused allowances from the previous three tax years. If your employer also made contributions, you would only need to carry forward unused allowances if employer contributions exceeded £ 15,000, as you would have to take advantage of the standard £ 40,000 annual exemption first.

If a carry forward is available, it is also important to emphasize that you can only carry forward the unused allowances for that tax year and you can only go back for the last three tax years. In the following table I show an example:

Tax year

Annual allowance

Total contributions

Unused certificates


€ 40,000


€ 40,000

£ 20,000

£ 20,000


€ 40,000

€ 15,000

£ 35,000


€ 40,000

£ 30,000

£ 10,000

If you remember, you will not be able to carry forward any unused allowances until you have exhausted the current tax year’s annual allowance of £ 40,000. So, assuming a person had an income of £ 70,000, they would have to contribute £ 40,000 first to get the full benefit for the 2021-22 tax year. You could then personally deposit an additional £ 30,000, bringing forward £ 10,000 from the 2018-19 tax year and £ 20,000 from the 2019-20 tax year (you always carry over the earliest of the previous three tax years). During the 2022-23 tax year, assuming their income remains at £ 70,000, they could contribute again £ 70,000 gross, with the remaining £ 15,000 carried over from 2019-20 and £ 15,000 from the 2020-21 tax year. During the 2023-24 tax year, they could contribute a maximum of £ 45,000 gross as they could only carry forward £ 5,000 in unused tax allowance from the 2020-21 tax year.

While it will be possible for higher earners to possibly pay more into their pensions, this is not a specific feature of the current pension funding rules, as pension funding was both and wage-restricted even before the new pension rules were introduced in April 2006. Since the rules for the annual allowance are not age-related, they are somewhat more favorable for people on lower incomes than under the previous legislation.


Do you have a tax or pension question that you would like an expert to answer?

Email your request to [email protected]