For 2023-24 the maximum taper applies to those with adjusted income in excess of £360,000, and these individuals will have a tapered annual allowance of £10,000.
Where an individual’s annual allowance has been reduced by application of the taper in previous years, only the balance of the tapered annual allowance can be carried forward to future tax years.
Example
Edison is a high earner with his total income exceeding both the threshold income and the adjusted income figures. This means his annual allowance is tapered each year to some extent.
He started paying personal pension contributions in the 2019-20 tax year and his income rises over the years, which increases the amount by which his annual allowance is tapered.
Tax year | Contributions made | Tapered annual allowance | Unused allowance |
2019-20 | £12,000 | £32,000 | £20,000 |
2020-21 | £12,000 | £26,000 | £14,000 |
2021-22 | £12,000 | £12,000 | £0 |
2022-23 | £12,000 | £4,000 | (£8,000) |
Edison can carry forward £8,000 from 2019-20 to remove the annual allowance excess in 2022-23 even though he was subject to the taper in both years.
In 2023-24 Edison has adjusted income of more than £360,000 so the maximum taper applies, but that does not mean he can no longer carry forward.
His allowance available will now be £10,000 and he will be able to carry forward the £14,000 unused allowance from 2020-21, meaning Edison can make a maximum contribution of £24,000 in 2023-24.
Carry-forward and the money purchase annual allowance
Once someone has flexibly accessed their pension savings – for example by taking income under flexi-access drawdown or by receiving an uncrystallised funds pension lump sum – they trigger the MPAA, which restricts their annual allowance to £10,000.
Once the MPAA is triggered, the option to use carry-forward in relation to money purchase contributions made after the trigger date is lost.
However, carry-forward can still be used to offset or eliminate the tax charge that arises from money purchase contributions that were made in the same tax year but before the MPAA trigger date.
It is also possible to continue to use carry forward on an ongoing basis in relation to any defined benefit pension inputs.
It may be appropriate for those without any defined benefits (or no need to use carry-forward in relation to defined benefits) to mop up any unused carry-forward immediately before they flexibly access their benefits and trigger the MPAA, as it is a case of "use it or lose it".
Carry forward and tax relief
It is important to understand that carry-forward only applies to the annual allowance and not tax relief entitlement.
Tax relief on member contributions is limited to 100 per cent of a member's relevant UK earnings in the tax year the contribution is paid, and earnings from previous years cannot be carried forward.
This means an individual who has maximum carry forward available would only be able to make a member contribution of £180,000 (for the current tax year and three previous years' unused allowance) if they also had the earnings in the current tax year to support it.
