How to take advantage of ‘Carry Forward’ and help grow your pension

Posted 03.08.2022

When it comes to ensuring your future financial security, it pays to make the most of your pension contributions and the government tax relief that’s available to you. Thanks to the pension carry forward rule, you can maximise the efficacy of your savings now, and reap the rewards later on in life.

What is the ‘Carry Forward’ rule?

Each year you may contribute as much as you like into your pension. However, you only receive tax relief on up to £40,000 of those contributions annually. Depending on your earnings and tax bracket, that tax relief could be at a rate as high as 45%, subject to conditions, so it’s well worth capitalising on.

The pension carry forward rule allows you to increase your threshold for the current tax year, meaning you could enjoy tax relief on up to £120,000 of pension contributions instead.

How does ‘Carry Forward’ work?

As the name suggests, the carry forward rule allows you to ‘roll over’ unused allowance from the previous three tax years. So, if your contributions in any of those years didn’t add up to the £40,000 threshold, you can carry forward the difference to 2022-23 and increase your tax relief threshold for this year.

The unused allowance needs to be from the three consecutive years before this one, and you can carry forward up to £120,000 of unused allowance — which makes a total of £160,000 for the year 2022-23.

How to benefit

Your adviser will be able to walk you through the process of boosting your pension contributions using the carry forward rule. It’s important to note that your contributions in any given year must be less than 100% of your earnings that year.

You can take advantage of the carry forward rule either by increasing your regular pension payments, or as a lump sum. Speak to your financial adviser to see how much you can benefit and the best way to proceed.

If you’ve taken full advantage of your carry forward allowance, it could be a good opportunity to top up a spouse’s or child’s pension. If they are a taxpayer they too can benefit from the carry forward rule, and if not will still receive tax relief on contributions up to £2,880.

Grow your pension

It’s never too early to get serious about your financial future. A skilled financial advisor will help you navigate the available options to help grow your pension and for future financial security.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

Pension Planning

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