As the end of the tax year approaches, many people start thinking about ISAs, capital gains allowances, and tax-efficient investing. One planning opportunity that is often overlooked — but can be incredibly powerful — is pension carry forward.
Used correctly, it can allow you to make significantly larger pension contributions while also reducing your income tax bill.
What Is Pension Carry Forward?
Most people are familiar with the annual pension allowance. For the current tax year, this is typically £60,000 (subject to income and tapering rules).
What many don’t realise is that if you haven’t used all of your allowance in previous years, you may be able to carry it forward.
Pension carry forward allows you to use unused annual allowances from the previous three tax years, provided:
- You were a member of a UK-registered pension scheme in those years, and
- You have sufficient relevant earnings (or employer contributions) to support the contribution.
This means you are not always limited to just this year’s allowance.
What This Means in Practice
In practical terms, pension carry forward can allow you to take cash that is currently sitting on deposit — often earning modest interest — and move it into your pension with the government effectively topping it up through tax relief.
If you have surplus cash in savings and sufficient pension allowance available, you can contribute that money into your pension and receive tax relief from the government on the contribution.
For higher and additional-rate taxpayers, this can be particularly powerful:
- A £10,000 pension contribution may only cost £6,000–£5,500 after tax relief
- The balance is effectively added by the government via income tax relief
- The full gross amount is then invested for your long-term future
When combined with carry forward, this can allow contributions far larger than many people expect — turning idle cash into highly tax-efficient, long-term capital.
This approach is often most effective where someone has:
- Built up cash reserves
- Received a bonus or lump sum
- Had a particularly strong income year
- Or accumulated savings that are no longer needed for short-term spending
Rather than leaving cash exposed to inflation, pension contributions — used appropriately — can significantly improve long-term outcomes while reducing your tax bill today.
Why This Can Make a Big Difference
For some people, carry forward can unlock six-figure pension contributions in a single tax year — all eligible for tax relief.
This is particularly valuable if you’ve experienced:
- A pay rise or promotion
- A bonus or commission payment
- A strong year of business profits
- A one-off liquidity event, such as a business sale
- Several years of low or no pension contributions earlier in your career
Rather than spreading contributions slowly over many years, carry forward allows you to catch up efficiently and legitimately.
The Tax Relief Benefit
Pension contributions attract tax relief at your marginal rate of income tax.
For higher and additional-rate taxpayers, this can be extremely valuable:
- 40% taxpayers can see £60,000 cost £36,000 net
- 45% taxpayers benefit even more
Used alongside carry forward, this can significantly reduce your income tax liability in a high-earning year.
Important: Salary Sacrifice Is Becoming Less Generous
Another reason this planning opportunity is particularly important now is that the advantages of salary sacrifice are being reduced from 6 April 2025.
While salary sacrifice remains a useful tool, changes taking effect from the 2025/26 tax year mean that, for some employees, the overall benefit will be less generous than in previous years.
This makes it even more important to:
- Review pension funding early
- Use available allowances while they still exist
- Consider carry forward before older allowances fall away
In short, opportunities available today may not be as valuable in future tax years.
Why Timing Matters — Especially Now
Carry forward works on a use-it-or-lose-it basis.
As each tax year ends, the oldest unused allowance drops away permanently.
That’s why planning before 5 April is critical. Once the tax year closes, opportunities that were available only weeks earlier may be lost forever.
It’s Not About Clever Tricks
Good financial planning isn’t about loopholes or last-minute decisions.
It’s about:
- Understanding the rules properly
- Knowing which allowances apply to you
- Using them at the right time
- Ensuring contributions fit within a wider, long-term financial plan
Pension carry forward is a perfect example of this — a long-standing, legitimate rule that can be extremely effective when applied thoughtfully.
Learn More
We’ve put together a detailed guide explaining how pension contribution allowances and carry forward work in the UK, including key rules and examples.
If you have cash on deposit, a strong income year, or are considering pension contributions before the tax year end, now is the time to act — not after 5 April.
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