On Monday 28 November, HMRC announced some changes to the carry forward rules governing pension funding. The changes enable people to carry forward unused allowances that were previously deemed unavailable and hence, can now pay more into their pension and benefit from further tax relief. This extra funding capability is great news, but is only available until the end of the current tax year, into pension arrangements with an input period ending in the 2011/12 tax year. Some people may not realise that they can still make use of this opportunity even if their pension input period in the current tax year has ended.
The changes announced by HMRC means anyone who has paid a large contribution, in either or both of their pension input periods ending in the 2009/10 and 2010/11 tax years, may now be able to pay more money into their pension if they have an unused allowance from a previous input period.
Example: 
As the example shows, large contributions made in one pension input period were deemed to wipe out any carry forward from the previous input period. The rule changes will undoubtedly mean people can now invest more into their pension.
This window of opportunity closes at the end of the tax year. But crucially, it only applies to pension arrangements with an input period ending in the 2011/12 tax year. People don’t always realise that the key driver behind contribution limits are ‘pension input periods’. A pension input period is driven by the date the first contribution is made into the pension and usually lasts 12 months. These dates are often different from tax year end dates.
If a person discovers that their pension input period for the 2011/12 tax year has already passed, they can still make use of this new opportunity, but they need to act fast. They will need to set up another pension plan within the current tax year to enable them to utilise this previous allowance. It is important that the input period date for the new pension is adjusted so that it ends on or before 5 April 2012.
It is not just top earners who can exploit these opportunities. Those who receive, for example, a large bonus, an inheritance, or have a windfall, can use carrying forward of unused allowances as a way to contribute more to a pension. Providing the amount does not exceed 100% of earnings, tax relief at the person’s highest marginal rate is available on the extra contributions. For directors of businesses, the additional contributions could be made directly by their company reducing taxable profits in the business.
Adrian Walker, retirement planning expert at Skandia, comments:
“With ongoing speculation around the future of higher rate tax relief on pension contributions this development is great news for people looking to maximise their pension funding. We are expecting a flurry of activity on the back of this rule change as people revisit their pension plans to see if they can now invest more. The increased flexibility to utilise unused allowances from up to three years earlier gives people greater opportunity to take into account good and bad years, and pay in extra in periods where they can afford to.”