Carry forward: our top five frequently asked questions

1. Can an individual use carry forward if they haven’t paid into a pension for a number of years?

   If the individual was a member of a registered pension scheme in the year they want to carry forward from, they’ll be able to use carry forward. The definition of member is very broad and includes an active, deferred, pensioner and pension credit member. 

2. Can an individual use carry forward after they’ve triggered the money purchase annual allowance (MPAA)?

   It’s not possible to use carry forward to pay contributions to a defined contribution scheme above the MPAA. When the MPAA has been triggered, tax relievable contributions to defined contribution schemes are limited to £4,000. Contributions above that amount will attract an annual allowance charge. Carry forward is still available for any defined benefit scheme funding.

3. How do you calculate any unused annual allowance for tax year 2015/16?

   Tax year 2015/16 was split into two periods. The pre-alignment period ran from 6 April 2015 to 8 July 2015 and covered pension input periods which ended between the 2 dates. There could have been more than one pension input period ending in the pre-alignment period. The post-alignment period ran from 9 July 2015 to 5 April 2016. The annual allowance for the pre-alignment period was £80,000. The annual allowance for the post-alignment period was zero, but any unused annual allowance from the pre-alignment period could be used in the post-alignment period capped at £40,000. Any unused annual allowance from the post-alignment period can be carried forward to later years.

4. Can an individual use carry forward if the tapered annual allowance applies?

   Carry forward can still be used if the taper applies, you simply substitute the tapered annual allowance for the standard annual allowance in the calculations. The taper was introduced in tax year 2016/17. 

5. Do you need to inform the pension provider or HMRC if you’re using carry forward?

   No, although it makes sense to keep records in case HMRC query any contributions in the future.

Want to know more?

You can find more information about carry forward below:

• Carry forward technical central article
• Carry forward in practice: case studies
• HMRC Pension Tax Manual

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.