Pension Carry-Forward: Worked Example for £200k–£500k Earners

Pension carry-forward lets you use unused pension annual allowance from the previous three tax years, allowing some high earners to contribute more than the standard annual limit in one year. To work out what you can use, you need to know your allowance for each year, including any taper, subtract what you actually contributed, and use the balance before it expires.

What Carry-Forward Actually Is

Pension carry-forward is the mechanism that lets you contribute more than the standard £60,000 annual allowance in a given tax year, provided you didn’t use your full allowance in the previous three tax years. The logic is: if you had the opportunity to contribute in year one and didn’t, that opportunity shouldn’t simply disappear. It should be available to use in year two, year three, or year four (the three-year window).

For example: in 2022-23, you earned £200,000, and your annual allowance was £60,000. But you only contributed £30,000. You have £30,000 of unused allowance. That unused allowance is available to carry forward. In 2023-24, you can contribute up to £60,000 (your fresh allowance) plus £30,000 (your carried-forward allowance), for a total of £90,000.

This is remarkably generous. The government is essentially saying: you get a four-year window to use each annual allowance. That’s four chances to make the contribution.

The reason this matters is that it allows high earners to manage lumpy income or volatile business profitability. A business owner whose business is quiet one year and booming the next can use carry-forward to contribute more in the boom year, offsetting the quiet year. An employee whose bonus is deferred can use carry-forward from a low-bonus year to contribute more in a high-bonus year.

For high earners earning £200,000 to £500,000, carry-forward can represent tens of thousands of pounds of additional contribution room that’s simply sitting there, unused, because they didn’t track it.

The Three-Year Window: When It Starts and When It Expires

This is the critical rule that people get wrong: carry-forward is available for three years after the end of the tax year in which you earned it. Not three years after you didn’t contribute. Three years after the end of the year.

So if you had unused allowance in 2022-23 (the tax year ending April 5, 2023), it’s available to use in 2023-24, 2024-25, and 2025-26. It expires on April 6, 2026.

If you had unused allowance in 2023-24 (the tax year ending April 5, 2024), it’s available to use in 2024-25, 2025-26, and 2026-27. It expires on April 6, 2027.

Many high earners reach April 5, 2026, and then discover they had carry-forward from 2022-23 that expired on April 6, 2026. If they haven’t used it by April 5, it’s permanently gone.

The challenge is that most people don’t track this proactively. Your pension provider should be tracking it, but some don’t send annual statements showing your available carry-forward. Your accountant should be tracking it, but many only tell you about it if you ask. So you reach the expiration date without realizing you had it.

Calculating Your Carry-Forward: The Basic Formula

Here’s the basic calculation: for each of the previous three tax years, you take your available allowance (what you were entitled to contribute, after accounting for taper if applicable) and subtract what you actually contributed. The result is your carry-forward for that year.

Available allowance minus actual contribution equals carried-forward allowance.

If you’ve got carry-forward from three separate years, you add them all together to get your total available carry-forward.

For example: - 2022-23: Available allowance £60,000, contributed £20,000, carry-forward £40,000 - 2023-24: Available allowance £60,000, contributed £30,000, carry-forward £30,000 - 2024-25: Available allowance £60,000, contributed £40,000, carry-forward £20,000 - Total available carry-forward: £90,000

This means in 2025-26, you could potentially contribute up to £150,000 (£60,000 fresh allowance plus £90,000 carry-forward).

The challenge in this calculation is determining your “available allowance” for each year, particularly if the annual allowance taper was applying to you. The taper reduces your available allowance based on your adjusted income for that year. If your adjusted income was different each year, your available allowance was different each year, and your carry-forward is different.

A Worked Example: The £200,000 Earner

Let’s work through a realistic scenario for someone earning around £200,000.

Year One: 2022-23 - Adjusted income: £200,000 - Annual allowance taper applies? No (£200,000 is below the £210,000 threshold) - Available allowance: £60,000 - Actual contribution: £25,000 - Unused allowance (carry-forward): £35,000

Year Two: 2023-24 - Adjusted income: £210,000 - Annual allowance taper applies? Yes (£210,000 is at the threshold, so no reduction yet) - Available allowance: £60,000 - Actual contribution: £40,000 - Unused allowance (carry-forward): £20,000

Year Three: 2024-25 - Adjusted income: £215,000 - Annual allowance taper applies? Yes (£215,000 is £5,000 above threshold) - Taper reduction: £2,500 (£1 for every £2 above threshold) - Available allowance: £57,500 (£60,000 minus £2,500) - Actual contribution: £35,000 - Unused allowance (carry-forward): £22,500

Total available carry-forward for 2025-26: - From 2022-23: £35,000 - From 2023-24: £20,000 - From 2024-25: £22,500 - Total: £77,500

In 2025-26, if this earner’s adjusted income is £205,000 (below the taper threshold), their available allowance is £60,000. Adding carry-forward, they have £137,500 available to contribute.

That’s the power of carry-forward. In a quiet year (when you couldn’t afford or chose not to contribute much), you built up allowance. In a subsequently better year, you can deploy it.

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A More Complex Example: The £300,000 Earner With Taper

Now let’s look at someone earning £300,000, where the taper is definitely applying.

Year One: 2022-23 - Adjusted income: £300,000 - Amount above £210,000 threshold: £90,000 - Taper reduction: £45,000 (£1 for every £2) - Available allowance: £15,000 (£60,000 minus £45,000) - Actual contribution: £0 (the earner had no cash flow for pension that year) - Unused allowance (carry-forward): £15,000

Year Two: 2023-24 - Adjusted income: £320,000 - Amount above threshold: £110,000 - Taper reduction: £55,000 (but allowance can’t go below £10,000) - Available allowance: £10,000 (minimum) - Actual contribution: £10,000 - Unused allowance (carry-forward): £0

Year Three: 2024-25 - Adjusted income: £290,000 - Amount above threshold: £80,000 - Taper reduction: £40,000 - Available allowance: £20,000 - Actual contribution: £15,000 - Unused allowance (carry-forward): £5,000

Total available carry-forward for 2025-26: - From 2022-23: £15,000 - From 2023-24: £0 - From 2024-25: £5,000 - Total: £20,000

Now assume that in 2025-26, the earner’s adjusted income drops to £250,000 (perhaps because of business performance or because they’ve made prior pension contributions that reduce adjusted income).

• Adjusted income: £250,000
• Amount above threshold: £40,000
• Taper reduction: £20,000
• Available allowance: £40,000
• Plus carry-forward: £20,000
• Total available: £60,000

Even though the raw allowance is only £40,000 that year, carry-forward brings the total to £60,000. This allows the earner to make a meaningful contribution in what is nominally a taper year.

The £400,000 Earner: Where Taper Severely Limits Contribution

At very high income levels, the taper creates situations where your available allowance is near the minimum (£10,000) every year. Carry-forward becomes the only way to make meaningful contributions.

Year One: 2022-23 - Adjusted income: £400,000 - Amount above threshold: £190,000 - Taper reduction: £95,000 (but minimum is £10,000) - Available allowance: £10,000 (minimum) - Actual contribution: £10,000 - Unused allowance (carry-forward): £0

Year Two: 2023-24 - Adjusted income: £420,000 - Amount above threshold: £210,000 - Taper reduction: £105,000 (minimum is £10,000) - Available allowance: £10,000 - Actual contribution: £8,000 - Unused allowance (carry-forward): £2,000

Year Three: 2024-25 - Adjusted income: £390,000 - Amount above threshold: £180,000 - Taper reduction: £90,000 - Available allowance: £10,000 - Actual contribution: £10,000 - Unused allowance (carry-forward): £0

Total available carry-forward for 2025-26: £2,000

For a £400,000 earner, carry-forward is limited by the fact that the taper reduces the available allowance to such a low amount that there’s very little unused allowance to carry forward. However, this changes dramatically if the earner’s income drops. If adjusted income drops to £280,000:

• Amount above threshold: £70,000
• Taper reduction: £35,000
• Available allowance: £25,000
• Plus carry-forward: £2,000
• Total available: £27,000

Even that small carry-forward contribution helps. But the reality for very high earners is that carry-forward often doesn’t provide the relief that it does for mid-to-high earners.

The Interaction Between Taper and Carry-Forward

This is where carry-forward gets complex: the taper can create situations where your allowance is low in one year, but carry-forward from that year (or from a previous year) can be deployed in a different year when the taper is less severe.

Here’s an important point: carry-forward is calculated based on the available allowance you had in the year you earned it, not based on future years’ allowances. So if you had a year where your allowance was £40,000 (due to taper) and you didn’t contribute, you have £40,000 of carry-forward. If the taper later reduces (because your income drops), you can use that £40,000 carry-forward in the lower-taper year, and it counts as a full contribution for that year.

This is powerful for business owners whose income varies year to year. A quiet year (lower taper) where you don’t contribute leaves carry-forward that you can use in a boom year, even though the boom year has a higher taper. The carry-forward from the quiet year was calculated at a lower taper, so it gives you more room.

The Importance of Documentation

Here’s where most high earners go wrong with carry-forward: they don’t maintain documentation. Your pension provider should track it. Your accountant should track it. But if both of you assume the other is tracking it, and neither of you proactively maintains the record, the carry-forward becomes invisible.

When April comes around and you want to make a large contribution, you ask your pension provider “do I have carry-forward?” If they don’t have good records, or if they’re slow to provide them, you’ve lost momentum. If you don’t have carry-forward documented by April 1, you’re racing against the April 5 deadline to make a decision.

The solution is simple: maintain your own spreadsheet tracking your available allowance and contributions for the previous three years. Once a year, compare your tracking against what your pension provider reports. If there’s a discrepancy, resolve it immediately rather than discovering the problem on April 4.

Having this simple record makes it impossible to lose carry-forward.

Common Mistakes in Carry-Forward Calculation

One common mistake is assuming the full £60,000 allowance when calculating carry-forward from a taper year. If you earned £280,000 in 2023-24, your available allowance wasn’t £60,000. It was £40,000 (£60,000 minus £20,000 taper reduction). If you didn’t contribute that year, your carry-forward is £40,000, not £60,000. Many people assume it’s £60,000 and discover later they’ve miscalculated.

Another mistake is forgetting that carry-forward expires three years after the end of the tax year, not three years from now. If you have carry-forward from 2022-23, it expires April 6, 2026. If today is February 2026, you have less than two months to use it. Many people realize this too late.

People also fail to track defined benefit contributions toward the annual allowance. If you’re also contributing to a defined benefit pension scheme (like a final salary pension), those contributions count toward your annual allowance and reduce how much you can contribute to other pensions. If you’ve forgotten that you’re also contributing to a DB scheme, you might overestimate your available carry-forward.

It’s easy to forget that a contribution in a subsequent year might trigger the taper, limiting how much carry-forward you can use. If you have £80,000 of carry-forward available, you might assume you can contribute £80,000. But if a contribution of that size pushes your adjusted income above the taper threshold, the taper reduces your allowance for that year, and you might not be able to use all the carry-forward. The carry-forward is available, but the taper might prevent you from deploying it in full.

Finally, many people make a large pension contribution without realizing that part of it exceeded their available allowance. You’ve got £20,000 of carry-forward, plus your fresh £60,000 allowance, for £80,000 total. You contribute £85,000. You’ve exceeded your allowance by £5,000. You now owe an annual allowance charge. Calculate your available allowance (fresh plus carry-forward) before making a contribution, not after.

When to Use Carry-Forward: Strategic Timing

Carry-forward is most valuable when used deliberately. Several scenarios make good candidates for deployment:

• Lumpy business income: A business owner whose company has a quiet year (when they don’t have cash for pension contributions) can use carry-forward in the following boom year to make a larger contribution that offsets the quiet year.
• Deferral of bonus: An employee whose bonus was deferred from one year to the next can use carry-forward from the low-bonus year to contribute more in the high-bonus year, managing the taper impact.
• Intentional low contribution year: A high earner might deliberately not contribute in a given year (to preserve cash or for other reasons), knowing they can use carry-forward later. This is sophisticated planning, but it works.
• Income reduction years: If your adjusted income drops (due to business difficulty, job change, or other reason), your available allowance might increase. You can then deploy carry-forward alongside the higher allowance to make a large contribution.

Carry-forward is least valuable when you’re in a situation where you contribute your full available allowance every year. If you’re maxing out your allowance each year, you don’t accumulate carry-forward, so it’s not available to use.

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The Role of Your Accountant and Pension Provider

Your accountant should be proactively telling you, by February of each year, what carry-forward you have available and what your total available allowance is (fresh plus carry-forward). If they’re not, you should ask them to calculate it for you. This is a core tax planning responsibility.

Your pension provider should maintain records of your contributions and should be able to tell you, on request, what carry-forward they show. Some providers are more organized than others. If your provider is slow or unclear, you might consider asking them to confirm their records in writing.

In the best scenario, you’ve got a three-way conversation: you, your accountant, and your pension provider all agree on what carry-forward is available. Once you’ve confirmed this, the planning becomes straightforward.

What to Do If You’ve Lost Records

If you’ve lost records and you don’t know what carry-forward you have, here’s what to do:

First, contact your pension provider. Ask them to provide a statement of all contributions you’ve made in the last four years (this covers the current year plus the three-year carry-forward window). They should have records.

Second, contact HMRC. You can request a copy of your Self Assessment tax returns for the previous three years, which will show what contributions you’ve declared.

Third, work with your accountant to reconstruct your available allowance for each year. If you’ve got Self Assessment returns, those usually show your adjusted income, which you can use to calculate what your available allowance was.

This reconstruction is tedious but often achievable. Once you’ve got clarity on what carry-forward exists, you can then decide how to deploy it.

Carry-Forward and Future Planning

Once you’ve calculated your carry-forward, the question becomes: do you deploy it now, or do you save it for a future year? The answer depends on your personal circumstances, but here are some factors:

If you’re approaching the expiration date, you should probably use it. There’s no value in letting it expire.

If your income is about to drop (due to business change, retirement planning, or other reason), it might be worth saving it for when income is lower and the taper is less severe. But remember, carry-forward expires regardless.

If you’ve got a significant amount of carry-forward (over £40,000), it might make sense to use some now and save some for future years. There’s no rule against this; you contribute what you want up to your available limit.

For most high earners, using carry-forward sooner rather than later makes sense, because it provides certainty and ensures you don’t lose it to expiration.