05 October 2015

The information contained within the following news articles have been pre published. The articles were published on the dates indicated and the information contained within these issues include references to taxation, legislation, regulation and other issues or concerns that may no longer apply

The Carry Forward Rules – Defined Benefit Schemes


Anyone who is a member of a registered pension scheme for a particular tax year will be able to utilise the new carry forward rules from that tax year.


  • There is no requirement for the member to have made any contribution or to have accrued any benefits
  • Tax relief is only available on personal contributions up to 100% of relevant earnings

The employer can use up some or all of the remaining carry forward amount as there’s no link between the employee’s salary and the level of employer contributions.  This is the case so long as the total remuneration package satisfies the HMRC ‘wholly and exclusively’ rule, otherwise tax relief may not be granted.


Carry forward applies to schemes with a pension input period that ends in 2011/12 onwards.  It is designed to be able to ‘mop up’ unused allowances from the previous three tax years by bringing these forward to increase the current years annual allowance.


For a defined benefit scheme the amount contributed to the scheme is the value of the benefit accrued over the input period.  The pension input period for your scheme may not necessarily be the same as the tax year, as it can be any 12 month period ending at some point in the tax year.


This all sounds good however some of the changes are not as generous.  For defined benefit schemes this is mainly the factor used to value benefits has been increased from 10 to 16.


Therefore to calculate how much can be carried forward we need to apply the new rules to the previous three tax years even though the rules hadn’t been introduced then.  Additionally we have to assume an annual allowance of £50,000 for each of these years even though the actual annual allowance in these years was a lot more.


Essentially we need to calculate the accrued benefit at the beginning of the scheme year and also at the beginning of the next scheme year.  Subtract one from the other and multiply the result by 16.  If your scheme accrues a separate lump sum benefit then you need to perform the same calculations for the lump sum although this doesn’t need to be multiplied by 16.


Provided the figure is below £50,000 then you have an amount which may be able to be carried forward.  You should also note that going forward if you happen to receive a large promotion in any one year you may accrue benefits greater than the annual allowance of £50,000 which if you have previously used carry forward and therefore cant increase your annual allowance will then lead to a tax charge.


Paul Dixon
Chartered Financial Planner


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