Carry forward - worked examples

These examples are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of legislation at the date of publication.

All examples assume the following:

  • all pension input periods run in line with the tax year,
  • the money purchase annual allowance doesn’t apply, and
  • there’s been no benefit accrual or contributions paid under any other registered pension schemes during the period covered.

For further information about Carry Forward (CF), see our Carry Forward FAQ at

https://www.aegon.co.uk/support/faq/pension-technical/carry-forward-faq.html

For information on the Tapered Annual Allowance (TAA), see our Tapered Annual Allowance FAQ at:

https://www.aegon.co.uk/support/faq/pension-technical/tapered-annual-allowance.html

Liam made a large contribution to his personal pension plan in tax year 2017/18, carrying forward some unused annual allowance from the 2016/17 tax year. It’s now tax year 2020/21 and he wants to know how much unused annual allowance he can carry forward because he’s planning on making another large personal contribution. The TAA doesn’t apply to him. The table below shows his pension input amounts for the pension input periods ending in the previous four tax years:

PIP ending in tax year Annual allowance Pension input amount Available to carry forward Total amount to carry forward to next tax year
2016/17 £40,000 £7,000 £33,000 £33,000
2017/18 £40,000 £70,000 (Uses £30,000 CF from 2016/17) Nil £3,000
2018/19 £40,000 £25,000 £15,000 £18,000
2019/20 £40,000 £45,000 (Uses remaining £3,000 CF from 2016/17 and £2,000 of the CF allowance from tax year 2018/19) Nil £13,000

Liam can make a contribution of up to £53,000 in tax year 2020/21 (£40,000 standard annual allowance for 2020/21 and £13,000 carry forward from 2019/20) without being subject to an annual allowance tax charge.

Although the carry forward from 2016/17 is more than 3 tax years ago, it can affect what carry forward is available in tax year 2020/21. This is best illustrated with an example. If Liam hadn’t been a member of a registered pension scheme until 2017/18 and the exact same contributions were made as above to tax years 2017/18, 2018/19 and 2019/20, this would produce the following figures:

PIP ending in tax year Annual allowance Pension input amount Available to carry forward Total amount available to carry forward to next tax year
2017/18 £40,000 £70,000 (An annual allowance tax charge would be due on any contribution over £40,000). Nil Nil
2018/19 £40,000 £25,000 £15,000 £15,000
2019/20 £40,000 £45,000 Nil £10,000

In this situation, Liam can make a contribution of up to £50,000 in tax year 2020/21 (£40,000 standard annual allowance for 2020/21 and £10,000 carry forward) without being subject to an annual allowance tax charge.

Lucy is subject to the TAA in the 2020/21 tax year and has been since the TAA started in tax year 2016/17. She wants to know whether she has any unused annual allowance available to use in this tax year to maximise her contribution. She has already made the maximum contribution for her TAA in the tax year.

PIP ending in tax year: Annual allowance/TAA Pension input amount Available to carry forward Total amount available to carry forward to next tax year
2017/18 £17,500 £17,500 Nil Nil
2018/19 £15,000 £10,000 £5,000 £5,000
2019/20 £12,000 £12,000 Nil £5,000

Lucy can carry forward £5,000 from 2018/19, so she could contribute an extra £5,000, giving a total contribution of £15,000 that can be paid in 2020/21 without attracting an annual allowance tax charge.

In tax year 2020/21, Barry’s employer wishes to pay in a large single contribution of £50,000 into his pension plan. A monthly employer contribution of £340 is also being paid on the 1st of each month and has been since the beginning of 2016/17. They also paid in a lump sum of £50,000 in tax year 2017/18 and 2019/20.

PIP ending in tax year: Annual allowance Pension input amount Available to carry forward Total amount available to carry forward to next tax year
2016/17 £40,000 £4,080 £35,920 £35,920
2017/18 £40,000 £54,080 Nil £21,840
2018/19 £40,000 £4,080 £35,920 £57,760
2019/20 £40,000 £54,080 Nil £21,840 (the £21,840 CF remaining from 2016/17 dropped away)

The total pension input amount for 2020/21 would be £54,080 (the £50,000 single contribution plus £4,080 in respect of the regular contributions). Barry will have more than enough annual allowance to cover this due to the carry forward of £21,840.

It’s worth noting that although the carry forward from 2016/17 is more than three years ago, it can affect what carry forward is available to use in 2020/21.

Oliver is a member of his employer’s GPP scheme, and both he and his employer pay 10% into the scheme. The TAA has applied to him since 2019/20 when he got a promotion.

For 2019/20, his salary was £170,000 so the total pension contribution was £34,000. His only other income for that tax year was £1,000 interest from his bank accounts. This means his adjusted income was £188,000 (calculated as (£170,000 (salary) + £1,000 (interest) + £17,000 (employer contribution)) and his threshold income was £154,000 (calculated as (£170,000 (salary) + £1,000 (interest) - £17,000 (member contribution)). An adjusted income of £188,000 means his annual allowance was tapered to £21,000.

He wants to know how the TAA will affect him and whether he’ll be able to carry forward any unused annual allowance from previous tax years to allow him to continue to contribute 10% without incurring an annual allowance charge.

PIP ending in tax year Annual Allowance/TAA Pension input amount Available to carry forward Total amount available to carry forward to next tax year
2016/17 £40,000 £6,000 £34,000 £34,000
2017/18 £40,000 £10,500 £29,500 £63,500
2018/19 £40,000 £12,000 £28,000 £91,500 
2019/20 £21,000 £34,000 Nil £57,500 (the £21,000 CF remaining from 2016/17 dropped away)

For 2020/21, Oliver’s salary will be £175,000 which would make the prospective total pension contributions £35,000, split as £17,500 from his employer and £17,500 gross from him. He estimates his bank interest will be around £1,500 for tax year 2020/21 which will make his adjusted income £194,000 (calculated as (£175,000 (salary) + £1,500 (interest) + £17,500 (employer contribution)) and his threshold income £159,000 (calculated as £175,000 (salary) + £1,500 (interest) - £17,500 (member’s contribution)). An adjusted income of £194,000 means his annual allowance will be tapered to £18,000.

Oliver would have the potential to pay in £75,500 (£18,000 + £57,500) in tax year 2020/21, more than enough to cover the £35,000 total contribution.

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