The pension annual allowance caps how much can be paid into your pension in a tax year before an additional tax charge applies. For most people the limit is generous — but for high earners, those in defined benefit schemes, and anyone who has already started drawing down, the rules are considerably more complex.
For the full PocketWise overview of pension tax relief and contribution rules, see the Pension Tax Hub.
The standard annual allowance: £60,000
From 2023/24 onwards, the standard pension annual allowance is £60,000 per tax year. This covers the total pension input — your contributions, employer contributions, and tax relief — across all pension schemes combined.
What counts towards the allowance:
| Pension type | What is measured |
|---|---|
| Defined contribution (workplace, SIPP, personal pension) | Total contributions in, including employer contributions and HMRC top-up |
| Defined benefit | Increase in pension value × 16 (accrual factor) |
What does not count:
- State Pension contributions (Class 1, 2, or 3 NIC)
- Transfers between pension schemes
- Death-in-service lump sums
The tapered annual allowance for high earners
The tapered annual allowance reduces the £60,000 limit for very high earners. The taper only applies if both of the following are true:
- Threshold income (income after deducting personal pension contributions) exceeds £200,000, AND
- Adjusted income (all income plus employer pension contributions) exceeds £260,000
If both thresholds are met, the annual allowance reduces by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000.
| Adjusted income | Tapered annual allowance |
|---|---|
| £260,000 | £60,000 (no taper) |
| £300,000 | £40,000 |
| £340,000 | £20,000 |
| £360,000+ | £10,000 (minimum) |
Important: The taper is calculated on adjusted income (which includes employer contributions). If your employer makes large pension contributions, these count towards your adjusted income and could trigger or worsen the taper even if your salary alone is below £260,000.
Carry forward: using previous years’ unused allowance
If you want to contribute more than £60,000 in a single year, you can carry forward unused allowance from the previous three tax years, subject to:
- You were a member of a registered pension scheme in the relevant year
- You use the current year’s full annual allowance first
- You use earlier years’ carry forward in order (2023/24 before 2024/25, and so on)
- You have not triggered the MPAA
Carry forward available 2026/27:
| Tax year | Standard allowance | Assumed contributions | Available to carry forward |
|---|---|---|---|
| 2023/24 | £60,000 | Example: £15,000 | £45,000 |
| 2024/25 | £60,000 | Example: £20,000 | £40,000 |
| 2025/26 | £60,000 | Example: £25,000 | £35,000 |
| 2026/27 (current) | £60,000 | — | — |
Maximum contribution in 2026/27 using carry forward: £60,000 + £45,000 + £40,000 + £35,000 = £180,000 (in this example)
Note: Contributions are also limited to 100% of your UK earnings in the tax year. Carry forward cannot be used to contribute more than your earnings.
The Money Purchase Annual Allowance (MPAA): £10,000
The MPAA applies once you flexibly access a defined contribution pension — for example:
- Start taking income from a flexi-access drawdown arrangement
- Take a flexible lump sum (UFPLS)
Once triggered, your allowance for defined contribution pension contributions drops to £10,000 per year, permanently. Carry forward does not apply to defined contribution contributions when the MPAA is in force.
The MPAA is not triggered by:
- Taking the 25% tax-free lump sum (PCLS) and moving the remainder to drawdown but not yet drawing any income
- Buying an annuity with all or part of the pension
- Taking a small pot lump sum (from a pot under £10,000)
- Taking defined benefit pension income
Who the MPAA affects most: People who start drawing from their pension early while still contributing significantly — for example, a 57-year-old who starts drawdown while still employed and contributing to a workplace pension.
Annual allowance charge
If you exceed your annual allowance (or MPAA), you pay an annual allowance charge — income tax at your marginal rate on the excess amount. This is reported on your self-assessment return.
If the charge is over £2,000, you may be able to ask your pension scheme to pay it from your fund (known as “scheme pays”) in exchange for a reduced pension entitlement.
Defined benefit pension inputs
For defined benefit (final salary) pensions, the pension input is calculated as:
(Closing pension value − opening pension value) × 16, plus any tax-free cash increase ÷ 6
Where:
- Opening pension value = pension earned at start of year × 16 (adjusted for CPI)
- Closing pension value = pension earned at end of year × 16
DB members are often surprised to find they’ve exceeded the annual allowance even in years when they made no personal contributions — particularly in years of large salary increases or promotion.
Practical planning checklist
- Check total contributions across all schemes (personal + employer + tax relief)
- Calculate adjusted income if your salary exceeds £200,000
- Check carry forward availability for the last three tax years via your pension provider or HMRC records
- If you are 55+, check whether you have already triggered the MPAA
- If you plan to make a large one-off contribution (business sale, inheritance, bonus), check available carry forward first