Alistair Wilson: The clock is ticking on carry forward

The benefits of topping up clients' pension contributions with unused allowances from previous years are often overlooked, writes Alistair Wilson, as he works through two case studies

With the end of the tax year looming, it is time to ensure all clients’ available allowances are used – where possible, of course. And carry forward allows unused pensions annual allowance to be brought forward from the three previous tax years.

Though every client would benefit from making use of the annual allowance and carry forward rules, there are three main groups to consider: those affected by the child benefit tax charge; those affected by the loss of their personal allowance; and those affected by the tapered annual allowance.

For clients hit with the child benefit tax charge – which affects households where anyone earns more than £50,000 – it may be worth reducing their ‘adjusted net income’ via a personal pension contribution in a bid to restore some or all of their child benefit.

The same tactic can be used with clients whose personal allowance has been cut because their ‘adjusted net income’ is over £100,000 – the reduction here is £1 for every £2 their ‘adjusted net income’ climbs above £100,000.

Finally, it is worth considering what is possible for those very high-earners affected by the tapered annual allowance. These are clients whose annual allowance is reduced if both their ‘adjusted income’ – remember, this is different from ‘adjusted net income’ – and their ‘threshold income’ exceed £150,000 and £110,000 respectively.

Case study #1: Bonus payment

Geoff is employed and a member of a money purchase pension scheme. He received a significant bonus and long service award from his company in 2018/19, pushing his earnings over £100,000 for the year.

He and his employer have been making regular contributions to the pension for many years, and he paid his bonus of £20,000 into his pension in 2015/16. (Please note the 2015/16 tax year was split into two mini tax years for the purposes of the annual allowance as part of transitional rules announced in the Budget – we include it here for clarity).

Bonus payment illustration

Tax year Standard AA Employer


(10% basic salary)



(5% basic salary)

Carry forward Total carry forward remaining
Pre-alignment 2015/16 £80,000* £2,025 £1,012
Post-alignment 2015/16 £40,000* £6,075 £23,038 £10,887 £10,887
2016/17 £40,000 £8,500 £4,250 £27,250 £38,137
2017/18 £40,000 £8,750 £4,375 £26,875 £65,012
2018/19 £40,000 £9,000 £4,500 £26,500 £91,512

* Post-alignment annual allowance (AA) is the residual of the pre-alignment annual allowance up to a maximum of £40,000. All amounts are gross. Source: Zurich UK

After Geoff and his employer have paid their usual ongoing contributions for this tax year, he will still have £91,512 annual allowance available, including carry forward. Geoff’s earnings including his bonus and long service award totalled £118,000, so he could in theory fully use his available annual allowance, although it would leave significantly less to live on than he is used to.

Geoff wants to reinstate his personal allowance and make good use of his annual allowance. To make sure he does not lose any of his annual allowance from 2015/16, he needs to contribute at least £37,387 more this year, gross. This includes the remainder of the 2018/19 annual allowance of £26,500 and the residual annual allowance from 2015/16. The annual allowance from 2016/17 and 2017/18 will still be available in 2019/20 for him to use should he again require it.

Geoff will also have entirely reinstated his personal allowance for the tax year because his ‘adjusted net income’ will now be below £100,000. This means an effective tax saving of 60% on the £18,000 that was previously over the £100,000.

Case study #2: Tapered annual allowance

Let’s now look at the impact of the tapered annual allowance on the level of contributions that can be carried forward. In this example we have assumed the client is always subject to the tapered annual allowance.

Tapered annual allowance illustration

Tax year Adjusted income Tapered annual allowance Gross personal contribution Carry forward
2015/16 (pre-alignment) n/a* £80,000* £5,000
2015/16 (post-alignment) n/a* £40,000* £5,000 £35,000
2016/17 £230,000 £10,000 £10,000 Nil
2017/18 £170,000 £30,000 £10,000 £20,000
2018/19 £170,000 £30,000 £10,000 £20,000

Notes: * The tapered annual allowance only came into force on 06/04/16 ** Post-alignment annual allowance is the residual of the pre-alignment annual allowance up to a maximum of £40,000. All amounts are gross. Source: Zurich UK

Should the client use the full £75,000 annual allowance available, including carry forward, however, they would actually regain the full £40,000 annual allowance for 2018/19 and so would have an additional annual allowance of £10,000 to use either immediately or to carry forward to future years.

Alistair Wilson is head of retail platform strategy at Zurich UK

Hints and tips

  • Work from accurate figures – don’t guess anything
  • Always request a pensions savings statement
  • Get full details of income for tapered annual allowance calculations, including salary; bonus; dividends; rental profit; and savings income
  • Always double-check tapered annual allowance calculations before and after planning contributions
  • Use appropriate calculators for carry forward and document all calculations in the client file