Pension Carry Forward Rules: How High Earners and Directors Can Use Unused Allowances
This article is for general information only and does not constitute personal financial, pension, investment, tax, accounting, or legal advice. Pension and tax rules depend on individual and company circumstances and may change. Pension benefits are normally inaccessible until the applicable minimum pension age. Investments can fall as well as rise, and you may get back less than you invested.
A higher bonus, a profitable trading year, or a period of modest pension funding can leave high earners and company directors with an opportunity to make a larger pension contribution.
Pension carry forward may increase the annual allowance available in the current tax year. It allows unused allowance from the previous three tax years to be considered, provided the relevant conditions are met.
However, the calculation must be reconstructed year by year. Previous pension contributions, employer payments, tapered allowances, and flexible pension withdrawals can all affect the amount available.
Start With the Current Annual Allowance
For the 2026/27 tax year, the standard pension annual allowance is £60,000.
The annual allowance applies to total pension input across all your registered pension arrangements. It does not provide a separate £60,000 allowance for each pension.
It is also not a strict ceiling on how much can physically be contributed. Instead, it is the amount of pension saving that can generally be made before an annual allowance tax charge may arise, subject to any available carry forward.
The government’s current pension scheme rates and allowances confirm the applicable figures.
For carry forward into 2026/27, the relevant tax years are:
| Tax year | Standard annual allowance |
|---|---|
| 2023/24 | £60,000 |
| 2024/25 | £60,000 |
| 2025/26 | £60,000 |
| 2026/27 | £60,000 |
Someone who used none of the standard allowance during the previous three years could theoretically have up to £240,000 of annual allowance available in 2026/27, including the current year.
That maximum should not be assumed. Tapering, previous pension input, and other restrictions may reduce it substantially.
Four Tests Determine What You Can Carry Forward
1. Were You a Pension Scheme Member?
Unused allowance can only be carried forward from a tax year in which you were a member of a registered pension scheme or a qualifying overseas pension scheme.
You did not necessarily need to contribute during that year. However, having earnings, owning a business, or serving as a director does not establish eligibility if you were not a qualifying scheme member.
2. How Much Pension Input Was Made?
The annual allowance applies across all pension arrangements.
For defined contribution pensions, the pension input amount generally includes:
- Gross personal contributions
- Employer contributions
- Contributions made by another person on your behalf
For defined benefit pensions, the calculation is based on the increase in the value of the promised pension benefit. It is not simply the amount shown as an employee deduction on a payslip.
A reliable calculation will normally require pension input figures from every provider and scheme administrator.
3. Was Your Allowance Reduced?
Each tax year must be checked using the annual allowance that actually applied to you.
A high earner may have been affected by the tapered annual allowance. Someone who flexibly accessed a defined contribution pension may instead have triggered the money purchase annual allowance.
4. Have You Already Used Earlier Allowances?
The current tax year’s annual allowance is used first.
Once that has been used, the available carry forward is normally taken from the oldest relevant year before moving to more recent years. In 2026/27, this means using the available allowance from 2023/24 before 2024/25 and 2025/26.
HMRC’s guidance on checking unused annual allowances explains the qualifying conditions and calculation order.
Unused allowance eventually expires, so the oldest year can be particularly important when planning a contribution.
Personal Tax Relief Is a Separate Test
The annual allowance and personal tax relief limit are related, but they are not the same calculation.
Carry forward may increase the annual allowance available for testing pension input. It does not increase your relevant UK earnings.
Personal contributions may generally qualify for tax relief up to the higher of:
- £3,600 gross
- 100% of your relevant UK earnings
This remains subject to the applicable conditions. Salary, bonuses, and certain other earned income may count as relevant earnings, while dividends and most investment income do not.
Employer contributions are not limited by the director’s relevant earnings in the same way. They still count towards the director’s annual allowance.
The company’s accountant should separately consider whether an employer contribution is an allowable business expense.
Important: Carry forward does not guarantee personal tax relief or corporation tax relief. The outcome depends on the contribution route, earnings, company position, and individual circumstances.
An Illustrative Carry-Forward Calculation
The following example uses assumed figures and is not based on a McCarthy Wealth client.
Suppose a director was a pension scheme member throughout the relevant period. They were not affected by the tapered annual allowance or money purchase annual allowance.
| Tax year | Annual allowance | Pension input | Unused amount |
|---|---|---|---|
| 2023/24 | £60,000 | £30,000 | £30,000 |
| 2024/25 | £60,000 | £45,000 | £15,000 |
| 2025/26 | £60,000 | £20,000 | £40,000 |
The director has £85,000 of unused allowance from the previous three tax years.
When the current 2026/27 allowance is included, the total annual allowance potentially available is £145,000.
If pension input during 2026/27 were £100,000, the calculation would normally use:
- £60,000 from the current tax year
- £30,000 from 2023/24
- £10,000 from 2024/25
This example only demonstrates the mechanics of the annual allowance. It does not establish whether the contribution would be affordable, suitable or eligible for tax relief.
High Earners Need a Taper Calculation for Each Year
For 2026/27, the tapered annual allowance may apply where both:
- Threshold income exceeds £200,000
- Adjusted income exceeds £260,000
Where both tests are met, the annual allowance is generally reduced by £1 for every £2 of adjusted income above £260,000. It can fall to a minimum of £10,000.
Employer pension contributions can form part of adjusted income, so a large company contribution may affect the calculation.
The taper position must be reconstructed separately for every carry-forward year. Income, bonuses, benefits, and pension contributions may have differed from one year to the next.
HMRC’s tapered annual allowance guidance explains how the threshold and adjusted income are calculated.
Our guide to the annual allowance charge considers what may happen when pension input exceeds the total allowance available after carry forward.
Flexible Pension Access Can Restrict Contributions
Certain flexible pension withdrawals can trigger the money purchase annual allowance.
For 2026/27, the MPAA is £10,000.
Unused MPAA cannot be carried forward. Previous unused annual allowance cannot be added to the MPAA to increase the amount available for further money purchase contributions.
Where someone also has a defined benefit pension accrual, contributions made before flexible access or other pension input, an alternative annual allowance calculation may be required.
HMRC provides separate guidance on pension allowances following flexible access.
Receiving a flexible access statement from a pension provider is a reason to confirm the MPAA position before considering a further personal or company contribution.
When Directors Are Most Likely to Use Carry Forward
Carry forward may become relevant when:
- Company profits are stronger than in earlier years
- Pension contributions were previously kept low to preserve business cash
- A director receives an unusually large bonus
- Retirement planning was delayed while the company developed
- An earlier unused allowance is approaching expiry
- The company is considering a larger employer contribution
An employer contribution may allow more to be paid than a director could contribute personally based on salary alone.
However, the available annual allowance does not mean the company should automatically use it. The business must still consider cash flow, working capital, tax liabilities, and other commitments.
HMRC’s guidance on tax relief for employer pension contributions explains that the treatment depends on the purpose of the payment and the wider remuneration package.
Our guide to director pension contribution limits explores the company-specific considerations in more detail.
Information to Gather Before Contributing
Before approving a larger pension contribution, gather:
- Pension input amounts from every arrangement for the current and previous three tax years
- Evidence of pension scheme membership during each carry-forward year
- Threshold and adjusted income calculations for each year
- Details of personal, employer, and third-party contributions
- Confirmation of whether the MPAA has been triggered
- Relevant UK earnings where a personal contribution is proposed
- The company’s current cash position, where an employer contribution is planned
- The provider’s contribution deadline and processing requirements
Keep the calculation and supporting documents. Carry forward applies automatically where the conditions are met, but evidence may be needed if HMRC later queries the position.
Check the Contribution Against Your Wider Retirement Plan
Carry forward may increase the annual allowance available, but the allowance is only one part of the decision.
A larger pension contribution can reduce access to personal or company capital. Pension money is normally inaccessible until the applicable minimum pension age and remains exposed to investment risk.
High earners and directors should also consider:
- Their expected retirement date
- Future income requirements
- Company liquidity
- Emergency reserves
- Existing pension investments
- Other personal and business assets
Through our retirement and pension planning service, we help clients consider pension contributions alongside their long-term income needs, existing arrangements and wider financial plans.
Visit the service page to learn more about our approach and arrange a free introductory conversation. Any recommendation would depend on an assessment of your circumstances and suitability. Charges may apply.
Pension and tax rules may change. Contributions above the available annual allowance can create a tax charge. Tax relief depends on individual and company circumstances. Pension investments can fall as well as rise, and you may get back less than you invested.
McCarthy Wealth is a trading style of Clarity Wealth Management LLP. Clarity Wealth Management LLP is authorised and regulated by the Financial Conduct Authority. Clarity Wealth Management LLP is entered on the FCA register under Firm Reference Number 575252.
