Question on Pension annual allowance and carry forward

nkb21

If anyone knows the answer to the following hypothetical scenario and question re pension annual allowance and carry forward, I’d be grateful if they’d confirm below. I suspect the answer is “No, of course you can’t do that you fool”, but no harm in asking, even if just for clarification.

• Tax Year 16/17 – Gross contributions £40,000 into employer/company pension
• Tax Year 17/18 – Gross contributions £40,000 into employer/company pension
• Tax Year 18/19 – No earned income (as redundant for entire year) but contributed £3,600 gross to a SIPP.

If I had then started a new job on 6th Apr 2019 on a salary of £80,000, I know I can make £40,000 gross pension contributions for tax year 19/20. However, can I also contribute a further £36,400 using unused carry forward from the previous tax year (18/19)? Total pension contributions in the tax year 19/20 would still be below total earned income for the same period (£76,400 v £80,000) and I was a member of a registered pension scheme during tax year 18/19 (hence contribution to the SIPP). Am I therefore afforded the ability to use unused carry forward for 18/19 or, as I didn’t have any earned income that year, do I only get a maximum allowance of £3,600 for 18/19 with no carry forward available?

etienneg

No, of course you cannot do that. (Note I stop there!)

"Carry forward" means carrying forward (for the purpose of calculating allowable pension contribution) income you had in a previous year but did not use for this purpose in that year. So, if you earned £40,000 but only paid £30,000 into a pension, you have £10,000 unused allowance that you can carry forward. But you say you had no earned income in 18/19, so you have no unused allowance to carry forward.

I'm not sure why you thought it might be otherwise.

HappyHarry

etienneg wrote: »

No, of course you cannot do that. (Note I stop there!)

"Carry forward" means carrying forward (for the purpose of calculating allowable pension contribution) income you had in a previous year but did not use for this purpose in that year. So, if you earned £40,000 but only paid £30,000 into a pension, you have £10,000 unused allowance that you can carry forward. But you say you had no earned income in 18/19, so you have no unused allowance to carry forward.

I'm not sure why you thought it might be otherwise.

Rubbish.

OP, your assumptions are quite correct. Your earnings in 2018/19 are irrelevant, it is only the earnings in 2019/20 that matter in this situation, together with the pension contribution in 2018/19.

You could contribute £76,400 (gross) in 2019/20.

bowlhead99

etienneg wrote: »

"Carry forward" means carrying forward (for the purpose of calculating allowable pension contribution) income you had in a previous year but did not use for this purpose in that year. So, if you earned £40,000 but only paid £30,000 into a pension, you have £10,000 unused allowance that you can carry forward. But you say you had no earned income in 18/19, so you have no unused allowance to carry forward.

No, 'carry forward' means carrying forward an allowance that you chose not to (or were unable to) use in a previous period into a later one so that you can still contribute the same amount across the multiple periods as someone else with more convenient personal circumstances was able to do.

I'm not sure why you thought it might be otherwise.

Because catering for people who have inconsistent earned income due to the lumpy nature of their self-employed business profits or their employment status - yet still have a need to efficiently fund their retirement - is precisely the reason the ability to carry forward an unused allowance exists.

If your earnings across two years are 40k 40k, or 20k 60k, or 0k 80k, you are welcome to contribute 80k into your pension across the two years, as long as you respect the rule that you can't put more than [higher of 3600 gross or your actual earnings] into the pension in either of the years.

Ignoring for illustrative purposes, any other reason for annual allowance being restricted such as MPAA.

BobbyFrench

Yes you can do this.

They are two separate rules.

You need taxable income in the current tax year, sufficient to support a contribution in the current tax year. You have this.

Your contribution needs to be within the annual allowance, and you are allowed to carry forward any unused allowance from the 3 previous tax years. There is no reference to previous years earnings. You have sufficient annual allowance, included carried forward allowance, to make your contribution.

jamesd

nkb21 wrote: »

I know I can make £40,000 gross pension contributions for tax year 19/20. However, can I also contribute a further £36,400 using unused carry forward from the previous tax year (18/19)? Total pension contributions in the tax year 19/20 would still be below total earned income for the same period (£76,400 v £80,000) and I was a member of a registered pension scheme during tax year 18/19 (hence contribution to the SIPP).

Yes, it's routine to do this, no problem.

No need to make any contributions to be a member of a scheme that you've already paid into in the past.

jamesd

etienneg wrote: »

"Carry forward" means carrying forward (for the purpose of calculating allowable pension contribution) income you had in a previous year but did not use for this purpose in that year.

Carrying forward income used to be possible but has been prohibited for many years. You need both:

1. at least as much gross income in the tax year as the gross amount of non-employer contributions you make
2. and as much annual allowance including carry forward as the gross contribution value for you by anyone including employers

Trying to be helpful, getting it wrong and being corrected is part of how people learn so just learn and keep trying.

It's easy to correct paying in more than pay. Just tell the pension company and ask for a "refund of excess contributions lump sum". They will refund the net to the individual and the tax relief to HMRC.

nkb21

Many thanks all, for your responses and explanations. A pleasant surprise that Im able to do that.