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How much can I carry forward?

A reader asks if pension carry-forward rules discriminate against lower earners
How much can I carry forward?

In an article on pensions in a recent issue, it was stated: “You can pay in up to 100 per cent of your annual earnings or £40,000 a year to a pension, whichever is lower. It’s also possible to carry forward unused pension allowances from the previous three years when you fill in your self-assessment form and make additional contributions. But you need to have earnings of at least the total amount you are contributing in the relevant tax year unless your employer is making the contribution.”

I have been informed by various sources that the carry-forward provision only applies to people earning £40,000 or more. Affluent people are most likely to put sums into pensions and to use low/under- contributions in previous years. But It would be quite unfair if the lower-paid were deprived of an opportunity to do so.

My understanding is that someone earning £60,000 could carry forward £40,000. Someone earning £40,000 could carry forward £40,000 and someone earning £25,000 could carry forward zero.

I would be grateful and so pleased to learn that I am wrong, and that the actual answer is that someone earning £25,000 could carry forward £25,000 so long as they earned that in the relevant tax year.

Can you clarify this for me,

P Coates


Gary Smith, chartered financial planner at Tilney, replies: The annual allowance represents the maximum amount of tax-relieved pension funding that can be made for an individual during each tax year. While the standard annual allowance is currently £40,000, it might be possible to contribute more than this if you have unused allowances from the previous three tax years by claiming a carry-forward allowance. For high-earning individuals (those earning above £240,000 including employer contributions) their annual allowance will be tapered, with the annual allowance reducing to £4,000 for those earning above £310,000. If an individual has released some income from a pension using flexible pension rules then they will trigger the money-purchase annual allowance (MPAA), which will restrict pension funding to £4,000 (gross) per tax year, with no carry forward available.

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