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 2016/17, carrying forward some unused annual allowance from the 2015/16 tax year. It’s now tax year 2019/20 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 ends in tax year Annual allowance Pension input amount Available to carry forward Total amount to carry forward to next tax year
2015/16 MTY 1* £80,000 £5,000 £40,000 to MTY 2 n/a
2015/16 MTY 2* £40,000 from MTY 1 £7,000 £33,000 £33,000
2016/17 £40,000 £70,000 (Uses £30,000 CF from 2015/16 MTY 2) Nil £3,000
2017/18 £40,000 £25,000 £15,000 £18,000
2018/19 £40,000 £45,000 (Uses remaining unused £3,000 CF from 2015/16 MTY 2 and £2,000 of the CF allowance from tax year 2017/18) Nil £13,000

*The annual allowance for the 2015/16 tax year is split into two mini tax years, with mini tax year one (which ended on 8 July 2015) having an annual allowance of £80,000 and mini tax year two (which runs from 9 July 2015 to 5 April 2016) having an annual allowance of nil. Up to £40,000 of unused allowance from mini tax year one can, however, be carried forward into mini tax year two. Any unused annual allowance from mini tax year two can be carried forward as normal. You can find more information on this in our Pension input periods FAQs.

Liam can make a contribution of up to £53,000 in tax year 2019/20 (£40,000 standard annual allowance for 2019/20 and £13,000 carry forward from 2017/18) without being subject to an annual allowance tax charge.

Although the carry forward from 2015/16 is more than 3 tax years ago, it can affect what carry forward is available in tax year 2019/20. This is best illustrated with an example. If Liam hadn’t been a member of a registered pension scheme until 2016/17 and the exact same contributions were made as above to tax year 2016/17, 2017/18 and 2018/19, 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
2016/17 £40,000 £70,000 (An annual allowance tax charge would be due on any contribution over £40,000). Nil Nil
2017/18 £40,000 £25,000 £15,000 £15,000
2018/19 £40,000 £45,000 Nil £10,000

In this situation, Liam can make a contribution of up to £50,000 in tax year 2019/20 (£40,000 standard annual allowance for 2019/20 and £10,000 carry forward) without being subject to an annual allowance tax charge.

Lucy is subject to the TAA in the 2019/20 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
2016/17 £17,500 £17,500 Nil Nil
2017/18 £15,000 £10,000 £5,000 £5,000
2018/19 £12,000 £12,000 Nil £5,000

Lucy can carry forward £5,000 from 2017/18, so she could contribute an extra £5,000, giving a total contribution of £15,000 that can be paid in 2019/20 without attracting an annual allowance tax charge.

In tax year 2019/20, 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 2015/16. They also paid in a lump sum of £50,000 in tax year 2016/17 and 2018/19.

PIP ending in tax year: Annual allowance Pension input amount Available to carry forward Total amount available to carry forward to next tax year
2015/16 (MTY 1) £80,000 £1,020 £40,000 to MTY2 only  -
2015/16 (MTY 2) £40,000 carried from MTY 1 £3,060 Nil £36,940
2016/17 £40,000 £54,080 Nil £22,860
2017/18 £40,000 £4,080 £35,920 £58,780
2018/19 £40,000 £54,080 Nil £21,840 (£22,860 CF from 2015/16 dropped away)

The total pension input amount for 2019/20 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 2015/16 is more than three years ago, it can affect what carry forward is available to use in 2019/20.

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 2018/19 when he got a promotion.

For 2018/19, his salary was £170,000 so the total pension contribution will be £34,000. His only other income for the 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
2015/16 MTY 1 £80,000 £4,000 £40,000 to MTY 2 -
2015/16 MTY 2 £40,000 £6,000 £34,000 £34,000
2016/17 £40,000 £10,500 £29,500 £63,500
2017/18 £40,000 £12,000 £28,000 £91,500
2018/19 £21,000 £34,000 Nil £57,500 ( £21,000 CF from 2015/16 dropped away)

For 2019/20, 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 2019/20 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 2019/20, more than enough to cover the £35,000 total contribution. 

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