Changes to the carry forward rules

In April 2011 the annual allowance for pension contributions was reduced to £50,000, subject to sufficient earnings in the relevant tax year.

The ability to carry forward unused relief from the previous three tax years was also introduced, although there have been variations in how the available carry forward relief has been calculated.

HM Revenue & Customs have now clarified the rules, which are more generous than many people originally thought.

It was previously interpreted that if you have contributed more than £50,000 in a previous tax year the excess over £50,000 would be brought forward and used against future years annual allowance.

For example; John paid £150,000 into his pension in the 2010/2011 tax year, but nothing in 2009/2010 and 2008/2009, so there would be no unused relief to carry forward. His pension maximum contribution would therefore be £50,000 in the 2011/2012 tax year.

In their clarification of the rules, for this example HMRC say John would be able to carry forward £100,000 to the current tax year (£50,000 from 2008/2009 and £50,000 from 2009/2010) making a total contribution of £150,000 in 2011/2012, without suffering any annual allowance charge.

The fact that he contributed over £50,000 in 2010/2011 tax year simply reduces the available allowance for that tax year year to nil.

Please remember that you must have been a member of a pension plan to make use of the carry forward rules.

You should seek professional independent financial advice for assistance in calculating your own maximum pension contributions.