Making large pension contributions can be a good option for those who want to ‘play catch up’ with their pension savings, perhaps having been unable to contribute for a period owing to affordability or competing financial objectives. It’s also appealing for those who simply wish to move more of their money into a tax-efficient account.
However, there are rules around how much you can add each tax year that you’ll need to be aware of.
Why does it pay to check my pension contributions?
Pension contributions from UK earnings benefit from pension tax relief. When you do so via a personal pension such as a SIPP, 20% is claimed from HMRC by the provider and any higher or additional rate income tax relief can be reclaimed via your self assessment form – potentially a simple way of reducing your income tax for the year while putting money aside for the future.
What’s more, while your money is invested in a pension it grows tax free. Any income or interest paid, as well as any profits made, are exempt. However, once you start drawing on your pot you pay tax on the income – apart from the first 25% (up to a maximum lump sum of £268,275) which is tax free.
Find out more: What is pension tax relief?
Remember, the tax treatment of pensions depends on individual circumstances and is subject to change in the future.
What is the maximum pension contribution in the UK?
The advantages of pensions are subject to certain limits. Overall contributions that receive tax relief are restricted to the higher of 100% of your UK taxable earnings with a minimum of £3,600 (after tax relief, so £2,880 before it’s applied).
For instance, if you earn £40,000 in the current tax year, the maximum you could put in is £32,000, which is topped up with basic rate tax relief to £40,000.
In addition, there is a pension ‘annual allowance’, the maximum you or someone else, for example your employer through a workplace pension contribution, can add to all your pensions in a single tax year, without incurring a tax charge. For the 2025/26 tax year, the annual allowance is £60,000.
Annual allowance calculations are fairly easy to work out for defined contribution pension schemes. You simply add your contributions (including tax relief) for the tax year to any amounts that your employer or anyone else pays into your pension. For defined benefit (DB) pensions such as final salary pension schemes it’s a bit more complex. The relevant figure is the capitalised value of the increase in pension benefits over the tax year – this information can be provided by the scheme administrator.
However, the standard annual allowance is reduced in some circumstances:
- Individuals with threshold income (typically income subtracting any relief at source pension contributions) of £200,000 a year and adjusted income (typically income plus any employer contributions) over £260,000 have a reduced annual allowance, which can be as little as £10,000. This is known as the 'tapered annual allowance'.
- There’s also a lower annual allowance of £10,000 for people that have started to access their pensions flexibly post-retirement age, for example by taking an income through drawdown. This is known as the Money Purchase Annual Allowance or ‘MPAA’.
If your pension contribution exceeds your pension allowance, you may face tax charges on the excess contributions, losing the tax relief benefits on that amount. However, there are also some more complex ‘carry forward’ rules that can allow you, in certain circumstances, to exceed the allowance if you haven’t completely used those from previous tax years.
What is carry forward?
If you haven’t used your full annual allowance from up to three previous tax years, you might be able to carry the remainder forward and use it in the current tax year. This could allow you to pay in over and above the current year’s annual allowance, perhaps to make up for periods of lower or missed pension contributions, without incurring an annual allowance tax charge.
This flexibility is useful for many people with lumpy earnings, including the self-employed, or those who simply wish to maximise their pension contributions using a sum they have received. For example, from an inheritance or sale of a business. The rules offer considerable scope for catching up provision for retirement in a highly tax efficient way. However, it is a complex area. If you want to take advantage, it’s important you fully understand the rules or you seek qualified financial advice that addresses your situation.
How does carry forward work?
If a particular tax year’s unused annual allowance isn’t fully used, it can only be carried forward for up to three years. After that, it’s lost. You must also use any unused annual allowance from the earliest year first. Be aware that you need to fully use the current tax year annual allowance before you can start to use any carry forward from previous years.
The main condition to using carry forward is you must earn at least the amount you wish to contribute in the tax year you utilise it – unless your employer is making the contribution. For example, if you want to use carry forward to add £80,000 to your pensions in this tax year, i.e., £20,000 more than the current annual allowance, your earnings before tax for that year must be at least £80,000.
It’s important to note this means earned income from employment or self-employment rather than dividends or property income. You must also have been a member of a UK-registered pension scheme in each of the tax years from which you wish to carry forward. Membership of any pension scheme is sufficient, even if you didn’t make contributions.
Alternatively, if the money is to be paid into your pension as a company contribution, then any amount can be paid into the pension up to the relevant annual allowance and any carried forward allowances as applicable, without you needing to have corresponding earnings for income tax purposes. However, the contributions must meet the ‘wholly and exclusively’ test to be an allowable deduction against trading profits for corporation tax purposes. In practice this means they are at a reasonable level for the individual concerned. If you are a business owner, speak to your tax or financial adviser to see whether it’s appropriate to make contributions on this basis.
How much can be carried forward?
The amount that can be carried forward is based on the unused annual allowance of the relevant previous years. It’s important to note that the standard allowance was £40,000 in the 2022/23 tax year and before, rather than the currently more generous £60,000.
You also need to take account of any tapered annual allowance – which affects very high earners – that may have applied in a tax year. The rules regarding this have altered quite a bit over time so this could involve some research and calculations. You can find the relevant allowances and limits on the HMRC website here, but you should consider speaking to a qualified financial or tax adviser if you have any doubts.
Those who have accessed their pensions flexibly and therefore triggered the Money Purchase Annual Allowance (or MPAA), cannot use carry forward for personal pension contributions.
How do I calculate carry forward?
The amount you can carry forward depends on how much unused allowance you have in each of the preceding three tax years. The standard annual allowances for the current and previous four tax years are as follows:
| Tax Year | Annual Allowance (£) |
| 2025/26 | £60,000 |
| 2024/25 | £60,000 |
| 2023/24 | £60,000 |
| 2022/23 | £40,000 |
| 2021/22 | £40,000 |
You’ll need to make a calculation for each of the three tax years before the current one, starting with the earliest, to see if there is any unused allowance.
The calculation is the annual allowance that applied to you in that tax year (taking account of whether the tapered annual allowance applies) minus the pension contributions made by you and your employer. You also need to include any benefits accrued in a defined benefit (final salary) scheme, which you’ll need to get this from your scheme administrator.
Remember, if the annual allowance was exceeded in any of the last three tax years, then that will have absorbed available allowances from the three years prior to that. A carry forward exercise should have occurred in that year to assess whether a tax charge was payable.
How do you use carry forward?
You don’t have to notify HMRC if you use carry forward to reduce or eliminate an annual allowance tax charge, but you (and your tax adviser if applicable) should keep copies of all your calculations in case they are required.
If the annual allowance plus available carry forward is exceeded, it is your responsibility to report the excess to HMRC and pay an annual allowance charge. This can be declared and paid via your tax return.
If you are unsure about how to manage your contributions in relation to the pension annual allowance, carry forward or the tapered annual allowance, seeking advice from a financial planner can help navigate the complexities and help you save tax.
Use our pension calculator to see what impact higher contributions will have on your retirement income
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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