This year's pension annual allowance is as low as £10,000 for some high earners.
However, pension carry forward is a rule that allows some people to contribute more and receive extra tax relief.
Remember: tax rules can change and the value of tax benefits depends on your individual circumstances.
The principle is simple: if you haven’t used your full annual allowance in any of the last three tax years (see below), carry forward allows you to make up for that and contribute up to an additional £130,000 this tax year. If you're a 45% taxpayer, this could secure you up to an extra £58,500 tax relief.
However, there are some restrictions. To qualify for carry forward, you must also:
The amount you can carry forward depends on how much unused annual allowance you have in each of the last three tax years (see below). You must include your own pension contributions, any made by your employer and the value of any benefits built up in a defined benefit (e.g. final salary) scheme.
|Tax year||Annual allowance|
* For the 2015/16 tax year, only contributions made from 9 July 2015 to 5 April 2016 are usually included. The exception is if total contributions registered from 6 April 2015 to 8 July 2015 were worth more than £40,000 - if this applies, see our factsheet for details.
This example should give you an idea of how the principle works in practice.
|What you can |
|What you can carry forward
(and contribute in addition to your current annual allowance)
* All contributions made after 8 July 2015
Contributions you make using carry forward can benefit from pension tax relief. The government automatically pays 20% of your contribution. You can then claim back more through your tax return. Higher-rate taxpayers can claim back up to an extra 20% and top-rate taxpayers up to an extra 25%.
The deadline for contributions that qualify for this year's tax relief is 5 April 2017. However, it may be wise to consider making any planned contributions before the Budget on 8 March in case restrictions are announced.
If you plan to contribute by cheque, you should allow sufficient time to ensure the cheque reaches us in time.
If you have more than one pension, or have been a member of a final salary scheme, you should also allow more time, as you might need to obtain information about your contributions from your pension administrator.
Remember when contributing to a pension, you're investing for your retirement. You can normally only access the money from age 55 (57 from 2028), up to 25% usually tax free and the rest taxed as income.
If you want to save for your retirement and take advantage of these valuable tax breaks, you could consider making a pension contribution. If you're happy making your own investment decisions, you can apply online for the Vantage SIPP and make a contribution in just a few minutes.