Using up previous years "unused" pension allowance

silvercue

Hi,

I have contributed a lot to my workplace pension in the last 3 years as I had neglected it prior and am over 50 and had an opportunity to do so.  But I have not used each years £60k allowance.

I understand that you can pay more than a years allowance (£60k) in a year if you have "unused" allowance form the previous three years.  But I need some guidance on how this works.

Here is what I paid and what was therefore unused:

2022-23:   Paid £38k leaving £22k unused

2023-24:   Paid £48k leaving £12k unused

2024-25:   Paid £53k leaving £7k unused

So, this gives a total of £41k unused allowance I can pay over and above the £60k yearly allowance.

But, I will not be able to pay all of that.  So, if I pay an additional £10k (in addition to the £60k) does that automatically take that from the 2022-23 unused allowance, or does it just mean that next year my allowance will be adjust to show

2023-24:   Paid £48k leaving £12k unused

2024-25:   Paid £53k leaving £7k unused

2025-26:   Paid £70k 

Does this mean that my usable "unused" allowance becomes:

£19k (12+7)

or

£9k (12+7-10)

Also, if I did have £22k to spend over the £60k allowance, does that mean the following year I have

2023-24:   Paid £48k leaving £12k unused

2024-25:   Paid £53k leaving £7k unused

2025-26:   Paid £82k 

£19k (12+7)

or

60k because(12+7-22) = -2

Sorry if that sounds a bit confused, I hope you understand what I mean.

Triumph13

With the usual caveats about the numbers including employer contributions, and personal contributions not exceeding earnings, contributions are applied in the following order:
1. Current year's allowance
2. Oldest available carry forward year

NoMore

You are certainly overthinking this. Once you’ve used the current 60k allowance, the excess is taken from the first available earliest year, then moving forward in time if you exceed it. Next year that earliest year is now outside the carry forward window and has no effect on your available carry forward. 

So in your example it’s 19k will be available to you next year. 

Dazed_and_C0nfused

The annual allowance was only £40k in 2022-23, not £60k.

And what you paid is only part of the story.


Here is what I paid and what was therefore unused:

2022-23: Paid £38k leaving £22k unused

2023-24: Paid £48k leaving £12k unused

2024-25: Paid £53k leaving £7k unused

Sarahspangles

Agree with the above, and just in case…. I couldn’t see the magic word ‘gross’ in your post. If tax relief was given on top of your contribution, and you haven’t included it, that also counts against your Annual Allowance.

Simon11

There is an error in your calculation.

For:

2022 to 2023

the allowance is only £40,000

Pension schemes rates - GOV.UK

silvercue

Dazed_and_C0nfused said:

The annual allowance was only £40k in 2022-23, not £60k.

And what you paid is only part of the story.


Here is what I paid and what was therefore unused:

2022-23: Paid £38k leaving £22k unused

2023-24: Paid £48k leaving £12k unused

2024-25: Paid £53k leaving £7k unused

Thank you, I did not know the allowance was £40k then

silvercue

Simon11 said:

There is an error in your calculation.

For:

2022 to 2023

the allowance is only £40,000

Pension schemes rates - GOV.UK

Thank you.  I have only learned this just now!

silvercue

Sarahspangles said:

Agree with the above, and just in case…. I couldn’t see the magic word ‘gross’ in your post. If tax relief was given on top of your contribution, and you haven’t included it, that also counts against your Annual Allowance.

Sarahspangles said:

Agree with the above, and just in case…. I couldn’t see the magic word ‘gross’ in your post. If tax relief was given on top of your contribution, and you haven’t included it, that also counts against your Annual Allowance.

I have included tax relief for all of my contributions.  My work contributions were before tax, so I was assuming I did not need to do anything else there

Marcon

silvercue said:

Sarahspangles said:

Agree with the above, and just in case…. I couldn’t see the magic word ‘gross’ in your post. If tax relief was given on top of your contribution, and you haven’t included it, that also counts against your Annual Allowance.

Sarahspangles said:

Agree with the above, and just in case…. I couldn’t see the magic word ‘gross’ in your post. If tax relief was given on top of your contribution, and you haven’t included it, that also counts against your Annual Allowance.

I have included tax relief for all of my contributions.  My work contributions were before tax, so I was assuming I did not need to do anything else there

You need to include the employer contributions in your calculation - they count towards the £60K Annual Allowance. 

How much will you be earning (gross) in the tax year in which you plan to make contributions using 'carry forward'?

Sarahspangles

silvercue said:

Sarahspangles said:

Agree with the above, and just in case…. I couldn’t see the magic word ‘gross’ in your post. If tax relief was given on top of your contribution, and you haven’t included it, that also counts against your Annual Allowance.

I have included tax relief for all of my contributions.  My work contributions were before tax, so I was assuming I did not need to do anything else there

Yes that’s right, if you salary sacrifice or your pension contribution is taken before tax (net pay) then you have received the highest relief available.