If your total pension contributions exceed the annual allowance, you’ll face a tax charge. Here’s how it works, how to calculate it, and how to avoid it.
For the wider cluster covering pension tax relief, allowance rules, lump sums and drawdown tax planning, use the main Pension Tax hub.
What Is the Pension Annual Allowance?
The annual allowance is the maximum you can save into pensions each tax year before incurring a tax charge.
| Tax Year | Standard Annual Allowance |
|---|---|
| 2024/25 | £60,000 |
| 2023/24 | £60,000 |
| 2022/23 | £40,000 |
| 2021/22 | £40,000 |
The allowance covers all pension contributions:
- Your personal contributions
- Employer contributions
- Tax relief added by HMRC
- Contributions to all your pension schemes combined
How the Tax Charge Works
If your total contributions exceed the annual allowance, the excess is added to your taxable income and taxed at your marginal rate:
Example — Basic Rate Taxpayer
- Annual allowance: £60,000
- Total contributions: £65,000
- Excess: £5,000
- Tax charge: £5,000 × 20% = £1,000
Example — Higher Rate Taxpayer
- Annual allowance: £60,000
- Total contributions: £75,000
- Excess: £15,000
- Tax charge: £15,000 × 40% = £6,000
Example — Additional Rate Taxpayer
- Annual allowance: £60,000
- Total contributions: £80,000
- Excess: £20,000
- Tax charge: £20,000 × 45% = £9,000
You still keep the excess in your pension — the tax charge simply removes the tax advantage on the amount above the allowance.
Carry Forward — Using Previous Years’ Allowance
Before you face a tax charge, check whether you have unused allowance from the previous three tax years to carry forward.
Rules for Carry Forward
- Use the current year’s allowance first (£60,000)
- Then carry forward from the oldest available year first
- You must have been a member of a registered pension scheme in the year you’re carrying forward from (even if you contributed nothing)
- The allowance available is whatever was unused in that year
Example
| Tax Year | Allowance | Contributions | Unused |
|---|---|---|---|
| 2021/22 | £40,000 | £10,000 | £30,000 |
| 2022/23 | £40,000 | £40,000 | £0 |
| 2023/24 | £60,000 | £20,000 | £40,000 |
| Total carry forward available | £70,000 |
In 2024/25, you could contribute up to £130,000 (£60,000 current year + £70,000 carry forward) without a tax charge.
The Tapered Annual Allowance
If you’re a high earner, your annual allowance may be reduced:
- Threshold income over £200,000 and adjusted income over £260,000
- Allowance reduces by £1 for every £2 of adjusted income above £260,000
- Minimum tapered allowance: £10,000 (reached at adjusted income of £360,000+)
Calculating Adjusted Income
Adjusted income = your total taxable income + employer pension contributions
Example — Tapered Allowance
- Salary: £220,000
- Employer pension contribution: £50,000
- Adjusted income: £270,000
- Amount over £260,000: £10,000
- Allowance reduction: £10,000 ÷ 2 = £5,000
- Tapered allowance: £55,000 (£60,000 — £5,000)
The Money Purchase Annual Allowance (MPAA)
If you’ve flexibly accessed your defined contribution pension (e.g., taken an income drawdown or an uncrystallised funds pension lump sum), a lower limit applies:
- MPAA: £10,000 for money purchase (defined contribution) pensions
- This cannot be increased using carry forward
- A separate alternative annual allowance applies to defined benefit pensions
The MPAA is triggered by:
- Taking income drawdown
- Taking an uncrystallised funds pension lump sum (UFPLS)
- Taking a small pot payment from a non-occupational scheme
It is not triggered by:
- Taking your 25% tax-free lump sum only
- Taking a trivial commutation lump sum
- Taking a small pot payment from an occupational scheme
How to Pay the Tax Charge
Self Assessment
You must report the excess on your Self Assessment tax return:
- Complete the ‘Additional Information’ pages (SA101)
- The charge is due by 31 January following the end of the tax year
- If you don’t normally file a return, you must register with HMRC
Scheme Pays
If the tax charge is over £2,000, you can ask your pension scheme to pay it from your pension pot:
- Mandatory Scheme Pays: Available if the charge exceeds £2,000 and you exceeded the standard annual allowance with that scheme — you must ask by 31 July the year after the tax year
- Voluntary Scheme Pays: Some schemes offer this even if you don’t meet the mandatory criteria
Your pension is reduced to cover the charge, but you avoid finding the cash yourself.
How to Avoid Exceeding the Allowance
| Strategy | How It Helps |
|---|---|
| Track all contributions | Check payslips, pension statements, and any personal contributions |
| Use carry forward | Maximise contributions using unused allowance from previous years |
| Salary sacrifice timing | Spread large contributions across tax years |
| Reduce employer contributions | If close to the limit, ask to reduce employer payments temporarily |
| Check your pension annual statement | Most providers send a summary of contributions each year |
Defined Benefit (Final Salary) Pensions
For defined benefit schemes, the “contribution” is calculated differently:
- It’s based on the increase in the value of your benefits during the year
- Calculated as: (closing pension × 16) + any lump sum — (opening pension × 16) — minus any contributions you made
- This can create unexpected annual allowance breaches, especially after a pay rise or promotion
Your scheme administrator should provide a Pension Savings Statement if they believe you’ve exceeded the annual allowance.