Thomas Coughlan, Specialist in Pension Planning

For employer use only.

As we move to the final months of the 2023/2024 tax year, it's worth reminding employees of the benefit of using their pension allowances and reliefs to help plan for their future in these times of uncertainty. Here we remind you of some of the traditional approaches.

Utilise the annual allowance

In recent years the annual allowance has been cut drastically. The March 2023 Budget finally halted this trend, increasing the allowance to £60,000 plus carry forward. With lifetime allowance charges being removed in 2023/2024 and the lifetime allowance being abolished from April 2024, pensions continue to be incentivised by very generous tax benefits. Tax relief against personal contributions and equivalent benefits for employer contributions represent an exemption from income tax on the segment of earnings that are directed to retirement funds. This is a significant benefit and should be fully utilised within the employee's financial means.

Each tax year, total personal contributions above £3,600 gross are restricted to relevant UK earnings; and total contributions (including accrual of defined benefits) from all sources are restricted by the standard or tapered annual allowance plus carry forward. Employees who have triggered the money purchase annual allowance are further restricted to total money purchase contributions of £10,000 each tax year without carry forward, but can use their remaining allowance to accrue within defined benefit schemes.


Within the limits of affordability (and assuming the money purchase annual allowance doesn’t apply), employees should top up their money purchase contributions to the lower of:

  • the remainder of their unused relevant UK earnings.
  • their remaining annual allowance plus carry forward.

Here's an example

Adam earns £125,000 in 2023/2024. He has already paid £5,000 and benefited from matched employer contributions. He is not subject to the tapered or money purchase annual allowances and has £15,000 carry forward available from 2020/2021 to 2022/2023.

His maximum tax-relievable personal contribution is the lower of:

  • unused relevant UK earnings:
  • £125,000 – £5,000 = £120,000

  • unused annual allowances:
  • £60,000 – £10,000 + £15,000 = £65,000

If he can afford the contribution, Adam should pay £65,000 gross (£52,000 net) to his money purchase pension before the end of the tax year in line with the provider’s end of tax year requirements.

He will get 20% tax relief at source – £13,000; a further £13,000 higher rate tax relief provided that he submits a self-assessment tax return for the tax year detailing the contribution. Furthermore, he will reclaim the remaining £10,000 of his income tax personal allowance, reducing his tax bill by a further £4,000.

His effective rate of tax relief will be 46.2%.

Carry forward

In the above example, it was necessary to work out the unused annual allowances for carry forward purposes. This allowed the unused allowances from the three previous tax years to be brought forward and added to this year’s allowance.

For those who can pay contributions above their annual allowance for the year (including those paid by their employer), carry forward is an integral part of tax year end planning. The rules are straightforward:

  • The unused annual allowance (standard or tapered) of each of the last three tax years is carried forward and added to this year’s allowance.
  • Carry forward from a particular tax year is only available if the employee was a member of a registered pension scheme in that year.
  • The current year’s allowance is used first, then the allowance of the earliest available carry forward years, then the next earliest year and so on.
  • No formal application is required, but if the annual allowance plus carry forward is exceeded the excess needs to be noted on the supplementary self-assessment form.

Earnings are not carried forward, so a scheme member still needs relevant UK earnings to justify personal contributions. Employer contributions, however, are not limited by earnings.

The following worked example covers the relatively complicated situation where carry forward is being used within three years of a previous carry forward exercise.


Tyrone, whose annual salary is £100,000, used carry forward in 2021/2022. At the time he had the following unused annual allowances:

Tax year Annual allowance Pension input amount Unused allowance
2018/2019 £40,000 £18,000 £22,000
2019/2020 £40,000 £38,000 £2,000
2020/2021 £40,000 £6,000 £34,000
2021/2022 £40,000 £0 £40,000

His carry forward amount was £58,000, which was added to his £40,000 annual allowance in 2021/2022. However, he did not pay the full amount. Instead, he paid a personal contribution of £75,000. This used up annual allowance from four separate years in the order shown:

Tax year Annual allowance Pension input amount Unused allowance 2021/2022 contribution
2018/2019 £40,000 £18,000 £22,000 (2) £22,000
2019/2020 £40,000 £38,000 £2,000 (3) £2,000
2020/2021 £40,000 £6,000 £34,000 (4) £11,000
2021/2022 £40,000 £75,000 £0 (1) £40,000

In 2023/2024, Tyrone wants to fully utilise his available annual allowance. He hasn't paid any further contributions since 2021/2022. His available annual allowance are as follows:

Tax year Annual allowance Pension input amount CF to 2020/2021 Unused allowance
2020/2021 £40,000 £6,000 £11,000 £23,000
2021/2022 £40,000 £75,000 n/a £0
2022/2023 £40,000 £0 n/a £40,000
2023/2024 £60,000 £0 n/a £60,000

His total annual allowance plus carry forward in 2023/2024 is £123,000. He can pay up to £100,000 personally, but will need employer contributions of at least £23,000 to maximise the available allowance.

Reclaiming the personal allowance and child benefit

As well as building up retirement benefits in a tax-efficient way, paying personal contributions to a pension can help reclaim the income tax personal allowance and avoid the high income child benefit charge. In both instances, the underlying income measure that makes this possible is ‘adjusted net income’, which is total taxable income before deducting the personal allowance less relief at source pension contributions and gift aid payments.

The relevant income band for the personal allowance is £100,000 to £125,140 in 2023/2024. Every £2 of adjusted net income above £100,000 reduces the personal allowance by £1. Therefore, as the personal allowance is £12,570, it is reduced to £0 when income exceeds £100,000 by at least £25,140 (2 x £12,570).

For child benefit, the relevant income band is £50,000 to £60,000. Every £100 of adjusted net income above £50,000 of the highest earner of a couple, one of whom receives child benefit, triggers a tax charge of 1% of the benefit received. Therefore, when income exceeds £60,000 the tax charge equals 100% of the benefit received, effectively withdrawing the benefit. If child benefit has not been claimed or received (perhaps because the couple knew one of their incomes would be too high) there is no tax charge.

If their existing pension provision hasn’t done so already, individuals and couples should consider whether a pension contribution would allow them to efficiently avoid either of these restrictions.


Jude receives an annual salary of £120,000. In addition, he benefits from a 15% employer pension contribution of £18,000, which requires him to pay 5% or £6,000 gross.

His adjusted net income is:

  • Income £120,000
  • Pension (£6,000)
  • ANI £114,000

Based on this he is set to lose £7,000 of his personal allowance.

If Jude can afford further contributions of £14,000 gross, he will reclaim his full personal allowance. The contribution will cost him £11,200 up front, but he will benefit from higher rate tax relief of £2,800 and an income tax reduction of £2,800 (owing to the increase in the personal allowance) when his self-assessment tax return has been submitted.

The contribution will ultimately cost him £5,600, thus benefitting from 60% tax relief and within his annual allowance for 2023/2024.


Sadie, who receives child benefit for two children, receives an annual salary of £55,000. In addition, she benefits from a 5% employer pension contribution of £2,750, which requires her to pay in the same amount.

Her adjusted net income is:

  • Income £55,000
  • Pension (£2,750)
  • ANI £52,250

Her child benefit entitlement is £2,075 and her high income child benefit tax charge will be:
*£2,200 / £100 = 22% x £2,075 = £456

(*every full £100 above £50,000 is included)

If Sadie can afford further contributions of £2,250 gross, she will avoid this tax charge. The contribution will cost her £1,800 initially, but she will benefit from higher rate tax relief of a further £396 and avoid a tax charge of £456.

The contribution will ultimately cost her £948, thus benefiting from 58% tax relief.