It is worth remembering, however, that there are groups of savers who either do not have access to carry forward, or whose access is restricted.
A complete lack of access is only really an issue when someone has not been a member of any registered pension scheme in the years from which carry forward is planned or needed. So, for example, someone who has moved to the UK for the first time in the current tax year and so has not built up any historic pensions would not be able to use carry forward from earlier tax years.
It is important to understand that any form of registered pension scheme membership creates eligibility for carry forward.
AJ Bell is frequently asked whether someone needs to be an active member of a pension scheme to be eligible, but this is not the case. Someone who had last accrued benefits 20 years ago, but who remained a member of that scheme is as eligible as someone who has made contributions in each intervening year.
In fact, even an individual whose only pension scheme membership is receipt of income from a lifetime annuity is still able to use carry forward. Therefore, it’s a low hurdle, but still one that can trip up the unwary.
Money Purchase Annual Allowance
When considering restrictions on access to carry forward, we also need to consider the money purchase annual allowance.
Having only introduced carry forward in 2011 to 2012 it was only a matter of a few years before the government began to tinker with eligibility.
This came as a result of the pensions freedoms in 2015, which, to be fair, was a momentous event.
The potential for individuals to abuse tax rules by paying significant contributions, primarily employer contributions through salary sacrifice, created a need for the Treasury to restrict the scope for abuse. It did this by saying anyone who had taken benefits under the pensions freedoms faced a reduced annual allowance of £10,000 in respect of their money purchase contributions.
Furthermore, those subject to the MPAA cannot carry forward annual allowance from previous tax years.
The fairness of the restriction, particularly after the allowance was reduced from an initial £10,000 to £4,000, has been questioned.
Arguably though, the complete removal of carry forward for money purchase schemes is more penal than the reduction in the limit itself. When considering the availability of carry forward, or lack of it, under money purchase schemes a reduction of 97.5 per cent in the amount that can be saved into these schemes once someone has triggered the MPAA feels inappropriately penal.
