How to supercharge your pension

Your fifties and sixties can be a great time to boost your pension. Many people have more spare cash than they did earlier in life, and you won’t have to wait long to unlock the money. But Fidelity research shows people in their sixties are more likely than any other age group to opt out of workplace schemes.

If you’ve been neglecting your pension of late - or you have a bonus or inheritance you would like to set aside for retirement - ‘carry forward’ rules could come in very useful.

• Read: Don’t make this costly pension mistake in your 60s

What is carry forward?

Most people can pay anything from 0% to 100% of their earnings into a pension, up to a limit of £60,000 a year. This is known as the annual allowance and, once you exceed it, you stop benefitting from tax relief. (Different limits apply to very high and very low earners.)

There is a way to surmount the £60,000 ceiling, however. Carry forward rules let you add unused annual allowance from the past three tax years to your current year’s allowance. This means, in theory, someone could add £240,000 to their pension in a single year.

Before anyone gets carried away, there are several important caveats, including:

1. You must earn at least the amount you wish to contribute in the tax year you are making the investment. For example, if you want to make a gross personal contribution of £100,000 today, you must earn at least £100,000 this tax year. Contributions from your employer are treated differently: they are not limited by your earnings but still count towards your annual allowance.
2. You must have belonged to a UK-registered pension scheme in each of the three tax years before the current tax year. It doesn’t matter if you didn’t pay any money into the scheme during those years.
3. You must have used up your annual allowance for the current tax year.
4. After using all your annual allowance for the current year, you must use any unused allowance from the earliest year first. For contributions made in the 2026/27 tax year, this will be the 2023/24 tax year.
5. If you have already accessed your pension, you may have triggered something known as the money purchase annual allowance (MPAA), capping your annual allowance at £10,000. Carry forward cannot usually be used to increase that MPAA limit.

As these details show, carry forward can be very valuable - but the rules are not straightforward. If you're unsure whether you qualify, it's worth speaking to a financial adviser or tax specialist before making any decisions. The government also has an online calculator to help you figure out whether you have unused annual allowance.

Worked example

Let's look at an example scenario.

• 50-year-old Henry had a good year at work. He received his usual salary and a bonus, meaning his annual earnings reached £160,000.
• He has already contributed £60,000 to his SIPP this tax year. However, he also has an allowance of £40k to carry forward from the past three tax years. This brings his total pension contribution to £100,000 - comfortably below his earnings of £160,000.
• Fast forward 10 years, the extra £40,000 could have grown to £65,000 in Henry’s pension, assuming investment growth of 5% a year. Crucially, the net cost for Henry was just £24,000 because he received 40% income tax relief on the original contribution.

Who is carry forward most useful for?

Carry forward tends to be most useful for people whose income isn’t consistent year to year.

For example, someone who is self-employed or receives irregular bonuses may have contributed less to their pension in previous years, but has the opportunity to contribute more in a stronger year.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question.

• Read: Self-employed and pensions: how to get started with a SIPP
• Read: How to retire at 45, 50, 55 or 60
• Read: How much do you need for a ‘comfortable’ retirement?

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing into a fund, please read the relevant key information document which contains important information about the fund. Eligibility to invest in a pension and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.