Carrying forward unused relief could result in a tax bill instead of a tax rebate for clients, as it is becoming ever-more complicated.
Stocks and shares remain volatile, bond yields are stagnating, property prices are falling and interest from cash remains as low as ever.
With so much uncertainty around, pension contributions remain an attractive prospect for savers with associated tax reliefs representing an immediate uplift of 20 per cent, 40 per cent, 45 per cent or even 60 per cent; a reward almost unattainable in any other mainstream investment or savings vehicle.
Pension tax relief was already considered low hanging fruit for the chancellor of the Exchequer’s cost cutting and now, post-Lifetime Isas and Brexit, the end is potentially nigh.
Quite rightly, savvy savers are therefore looking to carry forward’ unused allowances from previous years to maximise tax relief while they still can, but are they entitled to it?
Carry forward
Carry forward is a useful tool for both high earners and employers to make significant pension contributions in a single tax year.
It is highly tax-efficient in a number of scenarios, with income tax relief of up to 60 per cent, inheritance tax relief of up to 40 per cent and potentially corporation tax relief of up to 20 per cent, there is no savings vehicle like it.
With only a standard annual allowance - that is the amount you can pay into a pension (or the deemed pension contribution amount) - of £40,000 per annum, carry forward potentially allows a contribution of up to £170,000 to be made during the current tax-year.
This is less contributions (or deemed pension input) already made in the current and previous three tax years.
As is ever the case though, it is not that simple. First of all, a commonly unknown requirement is that the individual must have possessed a registered pension scheme in the tax-year from which they intend to carry forward the unused allowance.
While this could be a standard Personal Pension, a workplace pension or a defined benefit scheme for example, an annuity does not necessarily fall into this bracket. Indeed, the purchase of this insurance contract often reflects the cessation of pension scheme membership.
So, someone who took retirement benefits early and have since set up a new plan to use carry forward, might well be contributing more than is allowable.
Don’t forget your PIPs
In calculating carry forward allowance, pension contributions must be totalled and set against the respective annual allowance in either the current or previous three years.
It would be forgiven for simply assuming contributions can be grouped into the tax years in which they are made, but again, it’s not that simple.
Although on 8th July 2015, all open Pension Input Periods (PIPs) were closed with every pension scheme starting a new PIP on the 9th and finishing with the end of the tax year, previously it was not the case.
