What is the pension annual allowance?

The pension annual allowance is the most that can be paid into your pensions each tax year while still getting tax relief. For 2026/27 it is £60,000, or 100% of your earnings if lower. It includes your own contributions, your employer's and any tax relief. Going over it triggers a tax charge.

The allowance rose from £40,000 to £60,000 in April 2023. You can also carry forward unused allowance from the previous three tax years. You must have been in a registered pension scheme in those years. This helps people who want to make a large one-off contribution. If you earn less than £60,000, your own limit is usually your earnings. Non-earners can still pay in £3,600 a year gross with tax relief.

High earners face a tapered allowance. If your adjusted income is over £260,000, your allowance falls by £1 for every £2 above that, down to a minimum of £10,000. People who have already started taking flexible income from a defined contribution pension face the Money Purchase Annual Allowance of £10,000. Those subject to the taper are usually among the top 1% of earners.

If contributions exceed your available allowance, the excess is added to your income and taxed at your marginal rate. Large charges can sometimes be paid from your pension under a scheme pays arrangement. Doctors and senior public sector workers have often been caught out, because growth in defined benefit pensions also counts.

Who it affects: High earners paying in large sums