Complete guide to pension allowances for 2026/27 tax year. Annual allowance, tax-free lump sum limits, Money Purchase Annual Allowance, carry forward rules, and how to maximise your pension contributions.
·6 min read
Pension rules changed significantly in 2024 with the abolition of the Lifetime Allowance. Here’s everything you need to know about pension allowances for 2026/27.
Pension Allowances 2026/27 — Quick Reference
Allowance
Amount
What It Limits
Annual Allowance
£60,000
Total yearly contributions
Money Purchase Annual Allowance (MPAA)
£10,000
After flexible access
Tapered Annual Allowance (minimum)
£10,000
High earners (over £260,000)
Lump Sum Allowance (LSA)
£268,275
Tax-free lump sums
Lump Sum and Death Benefit Allowance (LSDBA)
£1,073,100
Combined lump sums + death benefits
Annual Allowance — £60,000
The Annual Allowance caps how much can be contributed to your pensions each year with tax relief.
What Counts Towards the Annual Allowance?
Contribution Type
Counts?
Your personal contributions
Yes
Employer contributions
Yes
Salary sacrifice contributions
Yes
Defined benefit pension accrual
Yes (calculated differently)
State Pension
No
Annual Allowance Rules
Rule
Detail
Maximum
£60,000 (or 100% of earnings if lower)
Minimum for non-earners
£3,600 gross (£2,880 net)
Employer contributions
Unlimited, but still count towards your allowance
Tax charge on excess
Marginal income tax rate
Example: £80,000 Salary
Contribution
Maximum Tax-Relieved
Personal contributions
£60,000 gross
Combined with employer
£60,000 total
Tax relief at 40%
£24,000
Carry Forward — Use Unused Allowance
If you haven’t used your full £60,000 allowance in previous years, you can carry forward the unused amount.
Carry Forward Rules
Rule
Detail
Years available
Previous 3 tax years
Requirement
Must have been in a pension scheme each year
Order of use
Current year’s allowance used first
Maximum with carry forward
Up to £60,000 per year × 4 = £240,000
Carry Forward Example
Tax Year
Allowance
Used
Unused
2023/24
£60,000
£10,000
£50,000
2024/25
£60,000
£8,000
£52,000
2025/26
£60,000
£12,000
£48,000
2026/27
£60,000
—
£60,000
Total available 2026/27
£210,000
Who Should Use Carry Forward?
Situation
Benefit
Large bonus this year
Shelter from income tax
Earning over £100,000
Restore Personal Allowance
Inheritance received
Tax-efficient investment
Business sale
Shelter the proceeds
Approaching retirement
Maximise pension pot
Tapered Annual Allowance — High Earners
If you earn over £260,000 (threshold income + adjusted income combined), your Annual Allowance is reduced.
Taper Calculation
Threshold
Amount
Effect
Threshold Income
£200,000+
Triggers taper check
Adjusted Income
£260,000+
Taper applies
Taper rate
£1 lost per £2 over £260,000
Minimum allowance
£10,000
Floor kicks in at £360,000
Adjusted Income vs Threshold Income
Income Type
Threshold Income
Adjusted Income
Salary
✓
✓
Bonus
✓
✓
Dividends
✓
✓
Employer pension contributions
✗
✓
Employee pension contributions
✗ (deduct)
✓
Taper Example
Total Income
Annual Allowance
£260,000
£60,000
£280,000
£50,000
£300,000
£40,000
£320,000
£30,000
£340,000
£20,000
£360,000+
£10,000
Money Purchase Annual Allowance (MPAA) — £10,000
Once you’ve flexibly accessed your pension, your Annual Allowance drops for defined contribution pensions.
What Triggers the MPAA?
Action
Triggers MPAA?
Taking 25% tax-free lump sum only (no income)
No
Taking income via drawdown
Yes
Taking an UFPLS (Uncrystallised Funds Pension Lump Sum)
Yes
Buying an annuity
No
Taking small pot lump sums (under £10,000)
No
Reaching pension age but not accessing
No
MPAA Impact
Before MPAA
After MPAA
£60,000 annual allowance (DC)
£10,000 annual allowance (DC)
Carry forward available
Carry forward still available for DB
Full tax relief
Tax relief on £10,000 only
How to Avoid Triggering MPAA
Strategy
How It Works
Take tax-free lump sum only
Don’t take any taxable income yet
Buy an annuity
Annuity purchase doesn’t trigger MPAA
Use defined benefit pension first
DB pensions don’t trigger MPAA
Small pot rule
Pots under £10,000 can be taken without triggering
Tax-Free Lump Sum — Lump Sum Allowance
You can take up to 25% of your pension tax-free, subject to the Lump Sum Allowance (LSA) of £268,275.
How the LSA Works
Detail
Amount
Maximum tax-free lump sum
25% of pot, up to £268,275 lifetime
Multiple pensions
Combined across all pensions
Exceeding the limit
Excess taxed at marginal rate
Tax-Free Lump Sum Examples
Pension Pot
25% of Pot
Tax-Free Amount
Taxable Excess
£200,000
£50,000
£50,000
£0
£500,000
£125,000
£125,000
£0
£1,000,000
£250,000
£250,000
£0
£1,500,000
£375,000
£268,275
£106,725
£2,000,000
£500,000
£268,275
£231,725
Protected Allowances
If you had Lifetime Allowance protection before April 2024, you may have a higher Lump Sum Allowance:
Protection
LSA Amount
No protection
£268,275
Fixed Protection 2016
£312,500
Individual Protection 2016
Varies (up to £312,500)
Enhanced Protection
Depends on previous LTA
Lump Sum and Death Benefit Allowance — £1,073,100
This limits the combined value of:
Tax-free lump sums you take
Serious ill-health lump sums
Death benefit lump sums paid to beneficiaries
LSDBA Rules
Scenario
Treatment
Death before 75
Lump sum to beneficiaries tax-free (up to LSDBA)
Death after 75
Lump sum taxed at beneficiary’s marginal rate
Serious ill-health
Tax-free up to LSDBA if under 75
Exceeding LSDBA
Excess taxed at 55% (lump sum) or marginal rate
Pension Tax Relief Rates
Tax relief on pension contributions depends on your marginal tax rate.
England/Wales/NI
Tax Band
Tax Relief Rate
£1,000 Gross Costs
Basic rate (20%)
20%
£800 net
Higher rate (40%)
40%
£600 net
Additional rate (45%)
45%
£550 net
Scotland
Tax Band
Tax Relief Rate
£1,000 Gross Costs
Starter/Basic (19-20%)
20% (reliefs at UK rate)
£800 net
Intermediate (21%)
21%
£790 net
Higher (42%)
42%
£580 net
Advanced (45%)
45%
£550 net
Top (48%)
48%
£520 net
How to Claim Higher/Additional Rate Relief
Method
How
Self Assessment
Claim on tax return
Phone HMRC
Request tax code adjustment
Net pay scheme (employer)
Automatic at full rate
Defined Benefit Pension Rules
Defined benefit (final salary/career average) pensions calculate allowance use differently.
DB Allowance Calculation
Step
Calculation
1
Take your annual pension entitlement at year end
2
Subtract entitlement at year start (uprated by CPI)
3
Multiply by 16
4
Add any lump sum increase
5
Result = pension input amount
DB Example
Item
Amount
Pension at year start
£25,000/year
After CPI uplift
£25,750/year
Pension at year end
£27,500/year
Increase
£1,750/year
× 16
£28,000 pension input
This counts towards your £60,000 annual allowance.
Annual Allowance Charge
If you exceed your annual allowance, you pay a tax charge on the excess.
How the Charge Works
Item
Rate
Charge rate
Your marginal income tax rate
On excess contributions
Income tax as if extra income
Scheme Pays
Ask pension to pay charge if over £2,000
Annual Allowance Charge Example
Scenario
Calculation
Contributions
£75,000
Annual allowance
£60,000
Excess
£15,000
Tax band
40%
Charge
£6,000
Scheme Pays
If your charge is over £2,000 and contributions (not carry forward) caused it, you can ask your pension scheme to pay the charge. They reduce your pension to cover it.
Key Pension Dates 2026/27
Date
Event
6 April 2026
New tax year — annual allowance refreshes
31 January 2027
Self Assessment deadline for 2025/26 (claim higher rate relief)
5 April 2027
End of 2026/27 tax year
31 July 2027
Deadline for election re: carry forward (previous year)