Making Sense of Pension Carry Forward: A Simple Guide for Business Owners
A clear explanation of pension contributions as we approach tax year end
As we reach the end of the tax year, many business owners and employees are thinking about their pension contributions. This is especially true if you're expecting a bonus or looking to reduce your company's corporation tax bill.
The Basic Numbers You Need to Know
Current pension contribution limit: £60,000 per year
Previous years' limit: £40,000 (before April 2023)
High earner threshold: £260,000 (when special rules kick in)
Money Purchase Annual Allowance: £10,000 (2025/2026 tax year)
The Good News: Carry Forward Explained
Think of carry forward as a way to "catch up" on pension contributions you didn't make in previous years. You can look back at the last three tax years and use any unused allowances.
Important Rules to Remember
The Earnings Rule: You can't contribute more than you earn
Example: If you earn £90,000, that's your maximum contribution limit, even if you have £120,000 in unused allowances
The Membership Rule: You must have been in a pension scheme during the years you want to use
The Order Rule: You must:
Use this year's allowance first
Then work backwards through previous years
Special Situations to Watch For
If you've already accessed your pension: The £10,000 limit applies, and you can't use carry forward
For high earners (over £260,000): Your allowance might be reduced
For employer contributions: Different rules apply, but must be "wholly and exclusively" for business
Recommendations
Keep Good Records: Document all carry forward calculations
Seek Professional Advice: Especially if you're a high earner or have complex arrangements
Plan Ahead: Don't wait until the last minute of the tax year
Consider Business Timing: Align contributions with your company's financial year
Regular Reviews: Check your pension contribution status throughout the year
Final Tip
These rules can be complex, particularly for business owners. While this guide gives you the basics, professional financial advice is recommended to make the most of your pension allowances and avoid any costly mistakes.
