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Carry-forward facility for annual allowance will be lost by non-members

Employees who fail to join a pension scheme during this tax year will be unable to take advantage of the carry-forward mechanism introduced by the Treasury as part of its tax relief reforms.

The annual contribution allowance will be cut from £255,000 to£50,000 from April next year while the lifetime allowance will be reduced by £300,000 to £1.5m from 2012 onwards.

The annual allowance reduction was accompanied by a carryback/carry-forward mechanism, meaning contribution spikes will not face a tax charge provided total pension payments do not exceed £;50,000 a year on average over a three-year period.

Hornbuckle Mitchell director Mary Stewart says people who do not set up or join a scheme before April will be unable to carry forward unused annual allowance.

She says: “The draft legislation states that the carry-forward rules do not apply unless the individual was a member of a registered pension scheme at some point during the tax year.

“If you were not a member, you will lose that year’s annual allowance to carry forward. This means anyone thinking the carry rule is a good excuse to put off starting a pension is making a mistake.”

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