Carry Forward: How to Use Up to Three Prior Years of Unused Annual Allowance

The Annual Allowance sets the maximum amount that can be contributed to UK registered pension schemes in any given tax year. In 2026/27, it stands at £60,000. For most savers making regular contributions, this limit is unlikely to be breached. But for business owners, professionals who receive large bonuses, individuals who have recently sold a business, or those who receive an inheritance, carry forward is a powerful mechanism to make substantially larger pension contributions in a single year.

This guide explains how carry forward works, who can use it, the key restrictions that apply, and the scenarios in which we most commonly help clients use it effectively.

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What Carry Forward Is

Carry forward allows you to supplement the current tax year's Annual Allowance with unused Annual Allowance from the three immediately preceding tax years. The underlying principle is straightforward: if you did not use your full pension contribution allowance in previous years, you can carry the unused portion forward and add it to the current year's limit.

The allowance available to carry forward is calculated as:

Annual Allowance for that year minus total pension inputs in that year

"Pension inputs" include all contributions by you, your employer, and any third parties to money purchase (defined contribution) schemes, plus the "deemed" increase in DB pension value over the year (measured by the standard HMRC formula).

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The Fundamental Rules

1. Scheme membership is required

To carry forward unused Annual Allowance from a given year, you must have been a member of a registered pension scheme in that year. This does not mean you need to have made contributions — simply being a member of a scheme (even a dormant personal pension or a preserved workplace pension with no ongoing contributions) is sufficient.

If you were not a scheme member in any of the three carry forward years, you cannot carry forward unused allowance from that year. This is rarely a practical issue, but it matters for individuals who have moved from overseas and are newly building UK pension provision.

2. Current year's allowance is used first

Carry forward must be applied in a specific order:

1. Current year's Annual Allowance is used first (£60,000 in 2026/27).
2. Remaining carry forward is taken from the oldest available year first — i.e., three years ago before two years ago before last year.

This ordering matters because the Annual Allowances in prior years may differ. The Annual Allowance was £40,000 from 2016/17 to 2022/23, and rose to £60,000 from 2023/24 — so for a 2026/27 contribution, each of the three carry-forward years (2023/24, 2024/25 and 2025/26) carries a £60,000 allowance.

3. The earnings cap still applies

This is the most important restriction: even with carry forward, your total contributions in the current tax year cannot exceed 100% of your UK relevant earnings in that year. The carry forward calculation tells you the maximum technically available, but the earnings cap is a hard ceiling.

Example: A business owner has been making minimal pension contributions for three years and now wants to make a large one-off contribution. Available carry forward is £120,000 (from the three prior years). Current year Annual Allowance is £60,000. Total technically available: £180,000. But their UK relevant earnings this year are only £100,000. The maximum contribution is therefore £100,000 — not £180,000.

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Calculating Available Carry Forward

To calculate your available carry forward, you need the Annual Allowance for each prior year and your actual pension inputs in those years.

Annual Allowances by year:

Tax Year	Standard Annual Allowance
2023/24	£60,000
2024/25	£60,000
2025/26	£60,000
2026/27	£60,000 (current year)

Example:

A client made the following pension contributions (employer + employee combined):

• 2023/24: £15,000 (unused: £45,000)
• 2024/25: £20,000 (unused: £40,000)
• 2025/26: £20,000 (unused: £40,000)

Available carry forward in 2026/27: £45,000 + £40,000 + £40,000 = £125,000

Total available in 2026/27: £60,000 (current year) + £125,000 (carry forward) = £185,000

Subject to the earnings cap, this client could contribute up to £185,000 in 2026/27.

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The MPAA: Carry Forward Does Not Apply

One of the most important restrictions on carry forward is that it does not interact with the Money Purchase Annual Allowance (MPAA).

The MPAA is triggered when you flexibly access pension income — for example, by drawing income from a flexi-access drawdown arrangement. Once triggered, your defined contribution contributions are capped at £10,000 per year. This cap is absolute. Carry forward cannot be used to increase it.

This means that a client who has accessed their pension flexibly — even once, even years ago — cannot use carry forward for their ongoing DC contributions. The only element of the Annual Allowance framework where carry forward still applies for them is the DB (defined benefit) annual input testing, which uses a separate allowance calculation.

For clients who have triggered the MPAA, the planning implications are significant. See our pension freedoms guide for detail on what triggers the MPAA and how to avoid triggering it inadvertently.

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The Tapered Annual Allowance and Carry Forward

The tapered Annual Allowance applies to high earners — those with adjusted income above £260,000 and threshold income above £200,000 in 2026/27. For every £2 of adjusted income above £260,000, the Annual Allowance is reduced by £1, down to a minimum of £10,000.

The key interaction with carry forward is this: if the tapered Annual Allowance applied to you in a prior tax year, you can only carry forward the unused portion of your tapered allowance — not the full standard Annual Allowance.

Example: A high earner had an adjusted income of £280,000 in 2023/24, giving a tapered Annual Allowance of £50,000 (reduced from £60,000 by £10,000). They made contributions of £20,000. Unused allowance for that year: £30,000 — not £40,000.

For very high earners in prior years whose tapered allowance was at the floor of £10,000, the carry forward from those years can be as little as £10,000 minus actual contributions — sometimes zero.

Calculating carry forward for clients with complex income histories requires detailed modelling. We strongly recommend working with an adviser before making a large carry forward contribution, to avoid inadvertently creating an Annual Allowance charge.

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Practical Uses of Carry Forward

Carry forward is most valuable for clients with irregular contribution histories or large, one-off financial events. Common scenarios we work with include:

Business owners

Self-employed individuals and owner-directors often have fluctuating profits. In lean years, pension contributions may be minimal or zero. When a profitable year arrives, carry forward allows them to make a large contribution and receive tax relief on it — sometimes reducing income tax significantly. This is a key part of our tax planning work for entrepreneurial clients.

Bonus recipients

Employees receiving large annual bonuses can use carry forward to make a pension contribution from that bonus in a highly tax-efficient manner. A £60,000 bonus contributed to a pension with carry forward — rather than received as salary — can save up to £27,000 in income tax and National Insurance for a higher-rate taxpayer.

Post-business sale proceeds

Following a business sale, individuals may have a large cash sum but limited pension provision. Carry forward can allow them to make a substantial one-off pension contribution and obtain tax relief — though the earnings cap applies based on the current year's income, which may be lower than in prior trading years if the business has been sold.

Inheritance or windfall

Receiving an inheritance or other windfall does not constitute "earnings" for pension purposes, so the earnings cap still limits the contribution. However, where an individual has high earned income in the same year, carry forward can combine with that income to fund a large contribution.

Catching up after a career break

Parents returning from extended leave, individuals who took time out for caring responsibilities, or those who were unable to contribute during overseas employment may have several years of unused allowance to carry forward once they return to UK employment.

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Record-Keeping and Reporting

HMRC does not require you to notify them in advance of using carry forward. However, if your total pension inputs in the current year exceed the standard Annual Allowance (£60,000 in 2026/27), you must report the position on your self-assessment tax return, stating that carry forward has been used.

You should retain:

• Evidence of pension scheme membership in each carry forward year
• Records of contributions made in each of the three prior years (employer and employee)
• Your Annual Allowance calculation for each year (including any taper that applied)

If you have received employer contributions, obtain confirmation of the amounts from your employer or scheme administrator — they count toward the Annual Allowance and are easy to overlook.

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How Global Investments can help

Carry forward is one of the most effective tools available for tax-efficient pension funding, but the calculation is often more complex than it appears — particularly where the tapered Annual Allowance has applied in prior years, where the MPAA has been triggered, or where the client has multiple pension schemes with different input histories.

Our advisers help clients model their carry forward position accurately, identify whether a large contribution makes sense in the current tax year, and structure it most efficiently — whether through an employer contribution, salary sacrifice, or personal contribution. We also ensure clients do not inadvertently create an Annual Allowance charge by contributing beyond their available limit. Please note that Annual Allowance rules and tax rates change; this guide reflects the 2026/27 tax year and should not be relied upon as personal financial advice. Always seek guidance from a regulated financial adviser before making significant pension contributions.