to help you make informed decisions about your wealth

How to unlock old pension allowances

18 January 2019

Using unclaimed pension allowances could substantially boost your retirement fund, so it’s worth taking the time to understand your options.

As life expectancy increases, it’s imperative that we save more to fund a comfortable old age. Yet, the incentives that help us do that have been reduced significantly over the years: just over a decade ago, there were few limits on the amount that could be saved into a pension tax-efficiently. Today, the government imposes a variety of different restrictions.

The annual allowance is a good example. This limits the amount that can be contributed to a pension each year, while still attracting tax relief. For the vast majority of people, it is £40,000 (or 100% of earnings if less) and includes the total amount of contributions that you pay, your employer pays, and anyone else pays on your behalf. Anything over the annual allowance is liable to the annual allowance charge, which is levied at your marginal rate of tax.

However, high earners are subject to a much more punitive ‘tapered annual allowance’, which acts to further restrict tax-efficient pension saving. The taper reduces the annual allowance by £1 for every £2 of income – which includes earnings, rental incomes and other investment income – over £150,000. For incomes of £210,000 or more, the annual allowance drops to £10,000 (see table below).

Since the 2016/17 tax year, people with a taxable income over £150,000 have had their annual allowance restricted. However, carry-forward can still be used where the restriction applies.

Those with total annual income above or around £150,000 need to be alive to the taper rules to avoid a potentially unpleasant surprise from HMRC. However, there are ways to mitigate the impact.

For instance, it’s well worth exploring the so-called ‘carry-forward’ rules. These allow taxpayers to mop up unused annual allowances from the previous three tax years, providing some individuals with the opportunity to make a significantly larger pension contribution in a single tax year.

“Provided you have already maximised the current year’s annual allowance, HMRC allows you to go back and carry forward unused allowance from the three previous tax years, starting from the earliest tax year first,” says Ian Price, divisional director at St. James’s Place.

“Tapered annual allowance can be carried forward in the same way as the standard annual allowance,” he adds.

This year is particularly important, as it 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. 

“Making a pension contribution while current rates of tax relief are available could make all the difference to your retirement fund, especially as speculation remains over whether the government will take the opportunity to review pension tax relief in the future,” suggests Price.


The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

* In summary, adjusted income includes your taxable income plus the value of any pension contributions made by your employer, including any paid as a result of salary sacrifice.


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