The unique combination of tax breaks and flexible access available to pensions make them a compelling choice when saving for retirement. One of the key benefits of saving into a pension rather than another type of savings or investment vehicle is the generous tax relief you’re entitled to receive.

Making the most of pension savings involves maximising tax relief and allowances which could substantially boost your retirement savings.

What is the pension annual allowance?

All UK taxpayers are entitled to claim tax relief on contributions they make to their pension. However, there is a cap on how much you can contribute while claiming tax relief, which is called your annual allowance.

The current annual allowance in the tax year 2021/22 is £40,000, but in some cases, yours could be lower. If your taxable income is less than £40,000, your annual allowance is 100% of your taxable income. If your taxable income exceeds £240,000, your annual allowance may be tapered. Further information can be found here.

What is the tapered annual allowance?

The tapering rules are complex. But, put simply, for every £2 of taxable income you receive above £240,000, your annual allowance reduces by £1. The minimum annual allowance is £4,000, for those with an income above £312,000. Further information can be found here.

What happens if you don’t use all of your pension annual allowance?

If you don’t use all of your pension annual allowance, you could be missing out on tax relief that you are able to claim.

Of course, you may not be able to afford to contribute the maximum in every tax year. So, it’s helpful to know that you can carry forward unused annual allowance to use in the future.

What is pension carry forward?

Pension carry forward allows you to use unused annual allowance from up to three previous years.

So, for example, if you’re a UK taxpayer with a salary of £100,000, and you have only used £20,000 of your annual allowance in each of the last three tax years, you have £20,000 of unused annual allowance from each year, totalling £60,000.

This year, the maximum you could potentially contribute is £100,000 – £40,000 from this year’s annual allowance. Plus, there’s the £60,000 from your previously unused annual allowance.

When is carry forward useful?

Usually, when you’re self-employed and your income changes drastically from year to year; you’ve received a windfall in this tax year that you’d like to pay into your pension; or, you’ve become a high earner with a tapered annual allowance.

How do you claim pension carry forward?

When planning to make large pension contributions, spreading them across tax years can mean higher rate relief is available on the full contribution. You can utilise pension carry forward by making additional contributions to your pension and you don’t need to notify HM Revenue & Customs to do this.

However, if you accidentally exceed the amount you’re entitled to claim tax relief on, you could be penalised. So, it’s important to check your past pension statements to see how much-unused pension annual allowance you have and keep records to prove that you’re eligible to carry forward.

This is a complex calculation, so to be sure you’re following the rules exactly, it’s sensible to obtain professional financial advice. Please speak with your financial adviser directly or contact us.


A pension is a long-term investment not normally accessible until age 55 (57 from april 2028). The value of your investments (and any income from them) can go down as well as up. This can have an impact on the level of benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice.

Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

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