Making contributions to a pension scheme remains an incentivised method to save for retirement. This post discusses how you can utilise pension allowance from previous years.
Making pension contributions are still a highly incentivised way to save for your retirement. With an ageing population the Government wants individuals to save more for their own retirement and hence provide tax relief when making pension contributions.
For the majority of individuals an annual cap, known as the annual allowance, of £40,000 can be invested into their pension fund without incurring a tax charge. Any amounts invested beyond this allowance are subjected to an additional tax charge.
Carry Forward
The carry forward rules allow taxpayers to use any unused annual allowances from the prior 3 years, meaning they can make contributions in excess of £40,000 without incurring a tax charge. This can be a useful way of putting more into your retirement fund and claiming tax relief in your tax return.
Complication – tapered allowance
Those earning in excess of £150,000 have their annual allowance reduced by £1 for every £2 above £150,000. Those earning more than £210,000 have their allowance reduced to a lower limit of £10,000. The table below shows the level of annual allowance based on the tax year and earnings;
| Income | 15/16 Allowance | 16/17 Allowance | 17/18 Allowance | 18/19 Allowance |
| <= £150k | £40,000 | £40,000 | £40,000 | £40,000 |
| £160k | £40,000 | £35,000 | £35,000 | £35,000 |
| £180k | £40,000 | £25,000 | £25,000 | £25,000 |
| £200k | £40,000 | £15,000 | £15,000 | £15,000 |
| >£210k | £40,000 | £10,000 | £10,000 | £10,000 |
Tax Planning for 18/19
The current tax year is the final opportunity for individuals to carry forward the £40,000 allowance left over from the 2015/16 tax year – the year before the taper came into effect. High earners should therefore consider making the most of any remaining allowances by paying a sufficiently large pension contribution before 5 April 2019.
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