What the annual allowance covers
The annual allowance is the cumulative cap on contributions to your UK pension(s) within a single tax year that qualify for tax relief. For 2026/27 it stands at £60,000, covering:
- Your own contributions, whether paid from net pay (relief at source) or via salary sacrifice
- Your employer's contributions (workplace match, regular employer contribution, employer top-up)
- Any salary sacrifice arrangements that fund pension contributions
- Member contributions and employer contributions to defined benefit (final salary) schemes — measured by the increase in your pension benefit during the year, not direct cash contributions
For most UK workers, the £60,000 is well above realistic contribution levels — the typical employee pays in far less than this. The allowance becomes relevant for higher earners, contractors making large bonus contributions, and people doing catch-up saving late in their career.
The earnings limit (a separate cap)
Alongside the £60,000 cap, personal contributions are limited to 100% of your relevant earnings in the tax year. If you earn £35,000, you can contribute up to £35,000 from your own pocket and get relief — the £60,000 ceiling isn't reached.
Employer contributions don't count against your earnings limit (they only count against the £60,000), so an employer can contribute beyond your earnings without breaching that specific rule.
For workers with no relevant earnings (most pensioners, some homemakers), the personal-contribution cap is £3,600 gross per year — a small but non-zero allowance.
Carry-forward — using unused allowance
If you haven't used the full annual allowance in the previous three tax years, you can carry forward the unused portion. This effectively lets you make a one-off contribution beyond £60,000 in any given year.
To use carry-forward, you must have been a member of a UK-registered pension scheme during the years you're carrying from. You don't need to have made contributions in those years — just to have been a member.
Carry-forward uses the oldest unused allowance first, then works forward. So if you haven't contributed at all for three years and want to make a £200,000 lump-sum contribution:
- Current year (2026/27): £60,000 allowance
- 2025/26: £60,000 unused → £60,000 carried forward
- 2024/25: £60,000 unused → £60,000 carried forward
- 2023/24: £60,000 unused → £20,000 carried forward (only £20,000 of this year's allowance needed)
- Total available: £200,000
The earnings limit still applies — personal contributions can't exceed 100% of current-year relevant earnings.
The tapered annual allowance
For high earners, the standard £60,000 allowance reduces. The taper triggers above two income thresholds:
- Threshold income: broadly your taxable income minus pension contributions. If this is under £200,000, no taper applies regardless of adjusted income.
- Adjusted income: broadly your taxable income plus pension contributions made via salary sacrifice or by your employer. Compared against £260,000.
For taxpayers whose adjusted income exceeds £260,000 and whose threshold income exceeds £200,000, the £60,000 allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000 at £360,000+ of adjusted income.
| Adjusted income | Tapered annual allowance |
|---|---|
| Up to £260,000 | £60,000 (no taper) |
| £280,000 | £50,000 |
| £300,000 | £40,000 |
| £320,000 | £30,000 |
| £340,000 | £20,000 |
| £360,000+ | £10,000 (minimum) |
For someone on £400,000 of adjusted income, the £10,000 tapered allowance significantly restricts pension saving compared to the standard cap. This drives high earners toward other tax-efficient saving vehicles — ISAs (£20,000/year), Lifetime ISAs, and where appropriate VCTs or EIS investments.
The Money Purchase Annual Allowance (MPAA)
A separate cap applies once you've flexibly accessed a defined contribution pension (e.g., taken a taxable lump sum or used flexi-access drawdown). After flexibly accessing, the Money Purchase Annual Allowance of £10,000 replaces your standard £60,000 for any future contributions to defined contribution schemes.
This is designed to prevent people from "recycling" pension money — taking out a tax-free lump sum, then putting the rest of the withdrawal back into the pension to get fresh relief. The MPAA caps how much you can keep adding once you've started drawing.
Taking only the 25% tax-free lump sum (without drawing any of the taxable 75%) doesn't trigger the MPAA. Only flexibly accessing the taxable portion does.
For workers who haven't yet started drawing their pension, the MPAA isn't relevant — the full £60,000 (or tapered) annual allowance applies.
The annual allowance charge — what happens if you exceed
If your contributions exceed the relevant annual allowance (standard £60,000, tapered down for high earners, or MPAA £10,000 after flexible access), the excess attracts an annual allowance charge equal to your marginal tax rate.
The charge is added to your taxable income for the year. For a higher-rate taxpayer in the 40% band, exceeding by £10,000 means a £4,000 tax charge. This effectively reverses the tax relief you'd have received on the excess.
Three ways the charge is paid:
- Self Assessment: most common. The excess is declared on your tax return; the charge is calculated and paid alongside any other tax due.
- Scheme Pays: for breaches above £2,000, you can ask your pension scheme to pay the charge directly from your pension pot. The pot reduces permanently in exchange.
- Mandatory Scheme Pays: for very large breaches with tapered allowance, schemes are required to pay if certain conditions are met.
For most workers, the simplest approach is to model contributions against the allowance before making large discretionary additions, rather than dealing with the charge after the fact.
A history of the allowance
The annual allowance has moved meaningfully in recent years:
| Year | Standard annual allowance |
|---|---|
| 2010/11 | £255,000 |
| 2011/12–2013/14 | £50,000 |
| 2014/15–2022/23 | £40,000 |
| 2023/24 onwards | £60,000 |
The £60,000 raised in 2023 makes the cap less binding than it had been for the previous decade. For most savers, the allowance is now genuinely a "for very high contribution levels" constraint rather than a routine planning point.
The tapered allowance has also moved: from 2016 to 2020 it had lower threshold incomes (£150,000 and £110,000) and a minimum of £10,000. The current thresholds of £260,000 and £200,000 (raised in 2023) make the taper bite at a higher income level than previously.
In practical terms
For most UK workers:
- Standard employees contributing 5-15% of salary with employer match: nowhere near the £60,000 cap. Annual allowance is rarely a binding constraint.
- Higher earners with bonus sacrifice: more likely to approach the cap, especially in bonus years. Carry-forward is the standard tool for one-off larger contributions.
- Very high earners: tapered allowance becomes the binding limit. The £10,000 minimum at £360,000+ income substantially restricts pension saving.
- Recently retired: MPAA of £10,000 caps further contributions if you've started flexibly drawing pension income.
For workers who think they might exceed the allowance, modelling the total contribution (your share + employer share + salary sacrifice) against £60,000 before the tax year ends is the simplest check.
What to do if you're close to the limit
A few practical patterns:
- Check the total: workplace pensions sometimes contribute more than employees realise (especially with employer NI pass-through). Add up your contributions, employer contributions and any salary sacrifice.
- Use carry-forward first: if you've had years of low contributions, the £180,000 of carry-forward room from three prior years can absorb a substantial one-off contribution.
- Consider tax-efficient alternatives: ISAs (£20,000/year), Lifetime ISAs, and partner's pension if they have unused allowance.
- For tapered allowance: model your specific position carefully — small changes to adjusted income can have outsized effects on available allowance. Professional advice typically pays for itself at this income level.
For your specific situation, the Pension Projection Calculator models contribution paths against the £60,000 cap. For complex tapered-allowance situations, a regulated Independent Financial Adviser is the right resource.