The year you get the biggest pay rise of your career can also be the most costly

Congratulations, you’ve made partner. This is a pivotal moment in your career and something you’ve been working towards for many years.

I've spoken with many of this year's new partners, and there's a pattern I recognise. It's completely understandable. At first, the new income trajectory feels full of opportunity, and quite rightly, people want to understand what it means for them and their family. Then life takes over. Getting up to speed with the demands of partnership takes priority, and personal finances get put on the back burner:

"Let's pick this up after the summer."

"My finances are fairly simple at the moment; let’s come back to this."

"I want to get established in the role before I focus on this."

"I've got a big mortgage and school fees to focus on."

I can totally understand where people are coming from when they say these things. However, in almost any other year, taking a few months to settle in before turning to your finances would cost you nothing.

This year is the exception, and not because of anything you are doing wrong. It is simply down to a legislative quirk that targets very high-earners, and it’s extremely easy to miss when you’re head-down in the new role. If no action is taken, or at least considered, valuable allowances will likely be permanently lost, costing you valuable tax relief.

The window that is quietly closing

So, what’s the actual problem? Let’s take a look.

Please note that the income levels used are illustrative and result in the harshest outcome. However, just because your income is not at this level doesn’t mean you aren’t impacted to some extent.

Let’s use an example of someone who last year was earning around £200,000. This means they had the full pension allowance of £60,000.

Now, let’s assume this year, their income has increased to £400,000. Great from an income perspective, but not from a pension perspective. Broadly speaking, when income exceeds £260,000, your pension annual allowance is likely reduced by £1 for every £2 of income above. In this example, the individual’s pension allowance has been reduced all the way to the £10,000 floor.

So, the picture has flipped. A year ago they could contribute large amounts to a pension with generous tax relief. From now on, their annual allowance is capped at £10,000.

But, and this is the part a lot of people miss, you have not lost the old allowances yet. ‘Carry forward’ lets you use unused annual allowance from the previous three tax years, on top of the current tax year. So, for a narrow window, a newly-tapered partner can still reach back to the years when the higher allowance was available.

That window closes a little more every April. And once a year drops out of the three-year reach, it’s gone for good.

What’s the actual cost of inaction?

Take an illustrative partner in exactly this position. For simplicity, assume their previous three years' allowances are unused. In reality, some will have been absorbed by employer contributions, but often a substantial amount is still available. Naturally, the numbers will vary for each individual, but the messaging is the same.

Acting this tax year, they could use:

This year's allowance of £10,000, plus three prior years at £60,000, so £180,000 of carry forward. A total of up to £190,000 can be paid into a pension. The best bit, they’d get tax relief of up to 45%. That’s over £85,000 of tax relief.

Now watch what happens to that same person purely by waiting.

Wait one year, and the oldest £60,000 rolls off the back of the three-year window. It is replaced at the front by this year's tapered £10,000. The total available falls from £190,000 to £140,000. That is £50,000 of allowance gone, and around £22,500 of tax relief lost, simply through the passage of time.

Wait two years, and another £60,000 rolls off and is replaced with £10,000. You’re now at £90,000. That is £100,000 of lost allowance and roughly £45,000 of foregone relief.

Wait three years, which is easily done when each year feels as busy as the last, and the last of the full allowances is gone. The total is now just £40,000, four years of the £10,000 floor. Against acting today, that is £150,000 of pension allowance lost and about £67,500 of potential tax relief left on the table.

Same person. Same income. The only variable is how long they waited.

When you act	Pension allowance still usable	Tax relief (at 45%)	Lost vs acting now
This tax year	£190,000	£85,500	Baseline
Wait 1 year	£140,000	£63,000	£50,000 allowance (£22,500 tax relief)
Wait 2 years	£90,000	£40,500	£100,000 allowance (£45,000 tax relief)
Wait 3 years	£40,000	£18,000	£150,000 allowance (£67,500 tax relief)

The costs that do not show up in that table

Tax relief is only the first layer.

The money that never goes into the pension also forgoes years, often decades, of tax-advantaged growth potential. Investments inside a pension grow free of UK income tax and capital gains tax. A contribution missed in your forties is not just the contribution; it is decades’ worth of tax-free growth potential and all the compounding it would have done by the time you retire. That figure dwarfs the relief. (It is not guaranteed, of course; investments fall as well as rise, but the direction of the point stands.)

There are knock-on effects later, too, including on things like your future tax-free cash entitlement, which is linked to the size of your pension. A smaller pot built too late has consequences that echo well into retirement.

Why I am telling you this, when I usually distrust urgency

I’m naturally suspicious of "act now" messaging. Most financial urgency is manufactured, a nudge dressed up as a deadline to get you to do something. I spend a lot of my time telling people to slow down, not speed up.

This is different, and it is worth being clear about why. The carry-forward window is not a marketing deadline I have manufactured. It is simply how the rules work.

That is what makes this particular year, for this particular group, so easy to underestimate. A delay that would cost nothing in almost any other circumstance quietly costs a great deal here, and this time the price is one you can calculate to the pound.

What could you do

None of this is about rushing to shovel money into a pension for its own sake. The money is locked away until at least 55 (rising to 57 from April 2028), and a pension is one part of a picture that also includes your mortgage, the school fees, and your wider goals, all of which are legitimate calls on the same money.

The point is simpler than that. Before you decide those other priorities win, it is worth knowing the actual number you would be giving up, because most people are stunned by how large it is. Then you can make a deliberate choice, rather than a default one.

Practically, that means understanding if your pension allowance is currently tapered, and by how much. Secondly, you should find out your carry-forward position across the last three years.

With this information, it is now easier to understand the opportunity cost of one decision versus another, and that’s what a good financial plan is about. Helping you to make fully informed decisions.

You worked extraordinarily hard to make partner. It would be a shame to let one of its biggest financial advantages quietly expire because the timing never felt quite right.

What if I don’t have the cash

This is a very common challenge, and it can be hard to know where to direct your money, or how much to apply to each goal.

Remember, you don’t need to use all of your available carry forward in one go. One strategy that may be appropriate is to maximise the current tax year (remember you cannot access old allowances before first maximising the current tax year), and then ‘sweep up’ the oldest available carry forward year (before it is lost). I.e. consider leaving the other two allowances. This process could then be repeated over the next two tax years, where appropriate. 

Remember, the pension allowance includes the basic rate tax relief that you will receive. For example, if you have a £60,000 allowance to use, this would require a cash contribution of £48,000 (i.e. 80% of the total allowance).

Capital at risk. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact a financial adviser. All figures quoted are for illustration purposes only. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. We do not provide tax advice.

Issued on behalf of Nova. Nova is a trading name of Nova Wealth Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN: 778951) and is a limited company registered in England & Wales (10739796).