The pension annual allowance sets the maximum amount that can be contribute to your pensions each year with tax relief. Understanding the limits — including tapering for high earners and the ability to carry forward unused allowance — is essential for maximising your pension savings without triggering an unexpected tax charge.
Standard Annual Allowance
| Tax Year | Annual Allowance |
|---|---|
| 2025/26 | £60,000 |
| 2024/25 | £60,000 |
| 2023/24 | £60,000 |
| 2022/23 | £40,000 |
The allowance covers all contributions — your personal contributions, employer contributions, and the tax relief added by HMRC. If your earnings are below £60,000, your allowance equals 100% of your earnings.
Money Purchase Annual Allowance (MPAA)
If you have flexibly accessed your pension (taken more than the 25% tax-free lump sum), your future annual allowance drops to £10,000.
This is triggered by:
- Taking income through flexi-access drawdown
- Taking an uncrystallised funds pension lump sum (UFPLS)
- Taking a small pot payment from a defined contribution scheme worth over £10,000
Not triggered by:
- Taking the 25% tax-free lump sum only
- Buying an annuity
- Taking a small pot (under £10,000)
- Receiving defined benefit pension income
Tapered Annual Allowance (High Earners)
For very high earners, the annual allowance is reduced:
The Two Tests
Both must be exceeded for the taper to apply:
| Test | Threshold |
|---|---|
| Threshold income | Over £200,000 |
| Adjusted income | Over £260,000 |
Threshold income = total taxable income minus personal pension contributions Adjusted income = threshold income plus employer pension contributions
How the Taper Works
| Adjusted Income | Annual Allowance |
|---|---|
| £260,000 or less | £60,000 (full) |
| £270,000 | £55,000 |
| £280,000 | £50,000 |
| £300,000 | £40,000 |
| £320,000 | £30,000 |
| £340,000 | £20,000 |
| £360,000+ | £10,000 (minimum) |
The allowance reduces by £1 for every £2 of adjusted income above £260,000.
Planning Around the Taper
- Salary sacrifice — reduces threshold income and may keep you below the taper threshold
- Pension contributions — personal contributions reduce threshold income (but not adjusted income)
- Timing — if income fluctuates, contribute more in lower-income years
Carry Forward
If you did not use your full annual allowance in the previous three tax years, you can carry the unused amount forward:
Rules
- You must have been a member of a registered pension scheme in the carry-forward years
- You use the current year’s allowance first, then the oldest year’s unused allowance
- Carry forward is available for 3 years only — unused allowance from year 4 is lost forever
- Total contributions are still limited to 100% of your earnings in the current year
Example
| Tax Year | Allowance | Contributions | Unused |
|---|---|---|---|
| 2022/23 | £40,000 | £5,000 | £35,000 |
| 2023/24 | £60,000 | £10,000 | £50,000 |
| 2024/25 | £60,000 | £8,000 | £52,000 |
| 2025/26 | £60,000 | — | £60,000 |
| Total available in 2025/26 | — | — | £197,000 |
If you earn at least £197,000, you could contribute the full amount in 2025/26 and receive tax relief on all of it.
Who Benefits Most
- Bonus earners — use carry forward to make a large contribution in a bonus year
- Those receiving an inheritance — contribute a lump sum to your pension
- Late starters — catch up on pension contributions efficiently
- Business owners — contribute retained profits to a pension in a high-income year
Annual Allowance Charge
If you exceed your annual allowance, you pay an annual allowance charge — essentially the tax relief is withdrawn on the excess:
Calculating the Charge
| Excess Amount | Tax Band | Charge |
|---|---|---|
| £10,000 | Basic rate (20%) | £2,000 |
| £10,000 | Higher rate (40%) | £4,000 |
| £10,000 | Additional rate (45%) | £4,500 |
The charge is at your marginal tax rate and is declared on your Self Assessment return.
Scheme Pays
If the charge exceeds £2,000, you can ask your pension scheme to pay it from your pension pot — reducing your future pension but avoiding an immediate cash outflow.
Monitoring Your Allowance
To stay within limits:
- Check your annual pension statement from each scheme
- Add up all contributions (personal + employer) across all pensions
- Check whether you are affected by the tapered or money purchase annual allowance
- Review carry forward availability to see if extra room is available
- File carefully via Self Assessment — excess contributions must be declared
For a broader view of pension strategy, see our SIPP guide and pension contributions guide.
The Tapered Annual Allowance: High Earners Explained
If your income is high, a reduced (tapered) annual allowance applies. This was reformed significantly in 2023 and the current (2026/27) rules are:
- Threshold income: £200,000 (includes salary, bonuses, and employer pension contributions)
- Adjusted income: £260,000 (adds personal pension contributions back in)
- If your adjusted income exceeds £260,000, the annual allowance tapers downward
- For every £2 of adjusted income over £260,000, the allowance reduces by £1
- Minimum tapered allowance: £10,000 (reduced from £4,000 prior to April 2023)
Example:
- Adjusted income: £300,000
- Excess over £260,000 = £40,000
- Allowance reduction = £40,000 ÷ 2 = £20,000
- Remaining allowance = £60,000 - £20,000 = £40,000
Senior NHS clinicians, Partners at professional firms, and high-earning executives are most affected.
Carry Forward: Using Previous Years’ Unused Allowance
If you haven’t used your full annual allowance in the previous three tax years, you can carry forward unused allowance to the current year. Rules:
- You must have been a member of a registered pension scheme in the years from which you carry forward
- Carry forward works in order from the earliest year first
- Your contributions in the carry-forward year still cannot exceed 100% of your earnings for that tax year
- It does not affect the tapered annual allowance calculation
Example:
| Year | Allowance | Contributions | Unused |
|---|---|---|---|
| 2023/24 | £60,000 | £15,000 | £45,000 |
| 2024/25 | £60,000 | £20,000 | £40,000 |
| 2025/26 | £60,000 | £18,000 | £42,000 |
In 2026/27, you could contribute: £60,000 (current year) + £45,000 + £40,000 + £42,000 = up to £187,000, subject to 100% of earnings cap.
Carry forward is particularly valuable for those with irregular earnings (self-employed, partnership profit shares, bonus-heavy earners) who want to make a large pension contribution in a high-income year.
The Money Purchase Annual Allowance (MPAA)
If you have triggered the MPAA by flexibly accessing a defined contribution pension (e.g., taking a flexi-access drawdown, UFPLS, or flexible annuity), your annual allowance for money purchase (defined contribution) pensions drops to £10,000 per year.
The full £60,000 allowance still applies to defined benefit pension accrual, but most private sector employees won’t have DB pension access once they’ve flexibly accessed DC savings.
If you’re over 55 and considering drawing from your pension while still working and contributing, get advice on MPAA before doing so — you could permanently limit your future contribution options.
Defined Benefit Pensions and the Annual Allowance
For defined benefit (final salary) schemes, the annual allowance is calculated differently — you don’t look at contributions paid in:
- The pension input amount is calculated as: (Closing benefit × 16) minus (Opening benefit × 16), adjusted for inflation
- For most active DB members, this figure is automatically calculated by the scheme administrator
- High-accruing DB members (e.g., senior public sector workers) can breach the £60,000 allowance even without making extra voluntary contributions
Related Guides
- Pension Contributions Guide — how much to contribute and when
- SIPP Guide — self-invested personal pensions
- Pension Tax Relief Guide — maximising tax efficiency
- Salary Sacrifice Guide — reducing income and NI through salary sacrifice
- Should I Max Out ISA or Pension First? — comparing the two main tax wrappers