At present, people who have paid the maximum allowed by the Inland Revenue in the current tax year, but have not paid the maximum allowable in any one of the previous six years, have been able to "catch up" with the missing payments. This is known as "Carry Forward". This feature is particularly attractive for the self-employed for whom cash flow is tight.

There is a last chance until 5th April 2001 to "Carry Forward"  unused tax relief from an earlier tax year.

The abolition of "Carry Forward" does not apply to "Section 226" retirement annuities taken out before 1st July 1988. Nor is "Carry Back" being changed: it will still be possible after 6th April 2001 to have contributions treated for tax purposes as if they were paid in the previous tax year.

The maximum contributions which can be paid in any financial year depend on an individual's age at the beginning of each tax year.

The percentage is based on Net Relevant Earnings. For the self-employed these are the Relevant Earnings for the year concerned less deductions such as expenses, capital allowances and trading losses. Relevant Earnings can be identified either as earnings from non-pensionable employment, or self-employed businesses, professions or partnerships. Relevant Earnings is subject to a limit, which is currently £91,800 (2000/2001).

• Personal Pension contributions enjoy considerable tax advantages;
• Contributions attract tax relief at the highest marginal rate.
• Income tax deducted at source on investments can be reclaimed (except for tax on UK dividends).
• Investment growth is free of capital gains tax.
• One quarter of the retirment benefits can be taken as tax-free cash.

Personal Pension benefits can be taken at any time after the age of 50, and can even be paid whilst the individual is still employed. After taking the lump sum of one quarter, the rest of the value of the personal pension account is used to buy an insured lifetime pension. As an alternative to a fixed assured annuity, the latest "drawdown" personal pensions allow a variable pension to be drawn until the age of 75. The amount drawn can vary each year between certain limits set by the Inland Revenue. For those where retirement funds build up to £400,000 or more by the time of retirement, these "drawdown" arrangements are proving popular.

To take advantage of the "Carry Forward" before it disappears on 5th April 2001 an individual must set up a personal pension if they do not have one already and pay the maximum contributions in the current tax year (the age related percentage limit). They should then ask their accountant how much unused pension relief they have available fom the last six years, and pay no more than that amount before 5th April 2001. Contributions for the earliest years must be paid first.

Contributions for "Carry Forward" must not be paid by an employer or an individual over the age of 75. Nor can any personal pension payments be paid for a period where the individual was a member of an occupational pension scheme.

As in all tax arrangements, the paperwork is essential!

If self-employed, the contribution will need to be included on the self-assessment form, and will reduce the tax which otherwise would have been paid. If employed, a Form PP42 must be completed to show the unused tax relief carried forward. Form PP120 will also be needed for all higher rate tax payers.

To pay additional contributions in respect of the last six tax years, ensure these are paid before 5th April 2001. This opportunity will no longer be available after 5th April 2001. Make sure you do not miss out!