Pension rules changed significantly in April 2024 when the government abolished the Lifetime Allowance — a cap that had limited the total amount anyone could hold in pensions tax-efficiently. That change opened up substantial new opportunities for high earners and older workers to contribute more aggressively. For 2026/27, the key limits are the £60,000 Annual Allowance and the £268,275 Lump Sum Allowance.
Understanding these rules matters both for people building their pension and those approaching retirement. Getting contributions right can save tens of thousands of pounds in tax.
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 is the maximum amount that can be paid into your pensions in a single tax year — from all sources combined — while still qualifying for tax relief. It is not just your own contributions that count: your employer’s contributions and any salary sacrifice also eat into this figure.
For most people, the £60,000 limit is comfortably above what they contribute in any given year. The average UK pension contribution is well below this. But for higher earners, those receiving generous employer contributions on top of their own, and those trying to make a large one-off contribution (perhaps from a bonus or inheritance), understanding the Annual Allowance becomes essential.
One important constraint: even if your Annual Allowance is £60,000, you cannot claim tax relief on contributions above 100% of your earnings in a given year. If you earn £40,000, the maximum tax-relieved contribution is £40,000 — not £60,000.
The one exception to the earnings rule is a small non-earner contribution. People with no relevant UK earnings can still contribute up to £3,600 gross per year (£2,880 net) and receive basic rate tax relief. This can be useful for a non-working spouse whose partner is a higher or additional rate taxpayer.
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 — see below) |
| 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 | Your marginal income tax rate |
Carry Forward — Use Previous Years’ Unused Allowance
If you have not used your full Annual Allowance in previous years, you may be able to carry forward the unused amounts. This can allow you to make a single large pension contribution well in excess of £60,000 — potentially up to £240,000 if you have carried forward three full years of unused allowance.
Carry forward is particularly valuable in specific situations: receiving a large bonus, selling a business, inheriting money, or deliberately boosting your pension in the years before retirement. It is also a powerful tool for those who want to reduce a tax bill near the end of the tax year.
To use carry forward, you must have been a member of a registered pension scheme during the years you are carrying forward from. You do not need to have contributed in those years — just been a member. You also need to use the current year’s full £60,000 allowance before drawing on carry forward.
Carry Forward Rules
| Rule | Detail |
|---|
| Years available | Previous 3 tax years |
| Requirement | Must have been a pension scheme member each year |
| Order of use | Current year’s allowance is used first |
| Maximum with carry forward | £60,000 × 4 years = up to £240,000 in a single year |
Carry Forward Example
Suppose you have contributed modestly to your pension in recent years but received a large bonus in 2026/27. Here is how carry forward could work:
| 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 |
In this scenario, someone could contribute up to £210,000 to their pension in 2026/27 and receive tax relief on the full amount — as long as it does not exceed their earnings.
Who Should Use Carry Forward?
| Situation | Why Carry Forward Helps |
|---|
| Large bonus this year | Shelter earnings from income tax by contributing to pension |
| Earning over £100,000 | Contributing restores the Personal Allowance (tapered above £100,000) |
| Inheritance received | One-time large sum sheltered from tax long-term |
| Business sale proceeds | Tax-efficiently invest proceeds |
| Approaching retirement | Maximise pension pot in final working years |
Tapered Annual Allowance — High Earners
For very high earners, the Annual Allowance is progressively reduced — “tapered” — once income exceeds certain thresholds. This can significantly limit how much someone can contribute to a pension with tax relief.
The taper only applies if both your threshold income (broadly, total income before pension contributions) exceeds £200,000 AND your adjusted income (total income plus employer pension contributions) exceeds £260,000. If your threshold income is below £200,000, the taper does not apply regardless of your adjusted income.
Where the taper does apply, the Annual Allowance reduces by £1 for every £2 that adjusted income exceeds £260,000. The floor is £10,000 — your allowance cannot fall below this, regardless of how high your income is.
Taper Calculation
| Threshold | Amount | Effect |
|---|
| Threshold Income | Above £200,000 | Triggers taper check |
| Adjusted Income | Above £260,000 | Taper begins |
| Taper rate | £1 lost per £2 over £260,000 | Reduces allowance |
| Minimum allowance | £10,000 | Floor applies above £360,000 adjusted income |
Adjusted Income vs Threshold Income
The distinction between these two measures is important because employer contributions count towards adjusted income but not threshold income.
| Income Type | Threshold Income | Adjusted Income |
|---|
| Salary | ✓ | ✓ |
| Bonus | ✓ | ✓ |
| Dividends | ✓ | ✓ |
| Employer pension contributions | ✗ — not included | ✓ — included |
| Employee pension contributions | ✗ — deducted | ✓ — added back |
Taper Example
| Adjusted Income | Annual Allowance |
|---|
| £260,000 | £60,000 (full) |
| £280,000 | £50,000 |
| £300,000 | £40,000 |
| £320,000 | £30,000 |
| £340,000 | £20,000 |
| £360,000 and above | £10,000 (minimum) |
If the tapered allowance applies to you, careful planning with your employer about salary, bonuses, and the structure of pension contributions can sometimes preserve more of your allowance.
Money Purchase Annual Allowance (MPAA) — £10,000
When you flexibly access your defined contribution pension — not just taking a tax-free lump sum, but actually drawing taxable income — a permanently reduced allowance called the Money Purchase Annual Allowance kicks in. This drops your ability to make tax-relieved contributions to defined contribution pensions from £60,000 to just £10,000.
The MPAA exists to prevent pension “recycling” — where someone takes money out of their pension and immediately puts it back in to get tax relief a second time. It is a significant and often irreversible consequence, which means the decision to access pension flexibly should not be taken lightly, especially by anyone still working and wanting to save more.
What Triggers the MPAA?
Not all pension actions trigger the MPAA. Simply taking the 25% tax-free cash does not trigger it — the key is whether you take any taxable income.
| Action | Triggers MPAA? |
|---|
| Taking 25% tax-free lump sum only (no income) | No — MPAA not triggered |
| Taking income via drawdown | Yes |
| Taking an Uncrystallised Funds Pension Lump Sum (UFPLS) | Yes |
| Buying an annuity | No |
| Taking small pot lump sums (pots under £10,000) | No |
| Reaching pension age but not accessing funds | No |
MPAA Impact
If you trigger the MPAA while still working and planning to contribute significantly to your pension, the impact can be serious. It is worth carefully considering the timing of any flexible access against your future saving plans.
| Before MPAA | After MPAA |
|---|
| £60,000 annual allowance for DC pensions | £10,000 annual allowance for DC pensions |
| Carry forward available for all pension types | Carry forward only available on DB pension allowance |
| Full tax relief available | Tax relief capped at £10,000 for DC contributions |
How to Avoid Triggering MPAA
| Strategy | How It Works |
|---|
| Take tax-free lump sum only | Do not take any taxable pension income yet |
| Buy an annuity | Annuity purchase does not trigger MPAA |
| Use a defined benefit pension first | DB income does not trigger MPAA |
| Use the small pot rule | Pots under £10,000 can be taken without triggering MPAA |
Tax-Free Lump Sum — Lump Sum Allowance
When you access your pension, you can normally take up to 25% as a tax-free lump sum. However, there is a lifetime cap — the Lump Sum Allowance (LSA) of £268,275 — on how much you can take tax-free across all your pensions combined during your lifetime.
The LSA replaced the old Lifetime Allowance for this specific purpose after April 2024. For most people with pension pots below around £1,070,000, the LSA will not be a restriction — 25% of £1,070,000 is £267,500, just below the limit. Only those with substantially larger pots need to actively plan around the LSA.
How the LSA Works
| Detail | Amount |
|---|
| Maximum tax-free lump sum | 25% of pot, subject to £268,275 lifetime limit |
| Applies across all pensions | Combined total across your lifetime |
| Exceeding the limit | Excess above £268,275 taxed at your marginal income tax 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 taxed at marginal rate |
| £2,000,000 | £500,000 | £268,275 | £231,725 taxed at marginal rate |
Protected Allowances
People who took out Lifetime Allowance protection before April 2024 — when the Lifetime Allowance was in place — may be entitled to a higher Lump Sum Allowance. If you have any protection certificate, you should check your personal LSA position carefully.
| Protection Type | 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 level |
Lump Sum and Death Benefit Allowance — £1,073,100
The Lump Sum and Death Benefit Allowance (LSDBA) is a broader cap that covers the combined total of tax-free lump sums you take during your lifetime plus any lump sum death benefits paid out when you die. It is set at £1,073,100 — the same figure as the old Lifetime Allowance.
In practice the LSDBA mainly matters for pension death benefits. If you die before age 75, your pension funds can typically be passed to your beneficiaries as a lump sum free of income tax (though Inheritance Tax may apply in some cases from 2027). The LSDBA caps the total amount that can be paid this way.
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 income tax rate |
| Serious ill-health lump sum | Tax-free up to LSDBA if under 75 |
| Exceeding LSDBA | Excess taxed at beneficiary’s marginal rate |
Pension Tax Relief Rates
Pension contributions attract tax relief at your marginal income tax rate — meaning the government is effectively topping up every pound you contribute. For a basic rate taxpayer, every £80 you contribute becomes £100 in your pension. For a higher rate taxpayer, every £60 becomes £100.
In England, Wales and Northern Ireland:
| Tax Band | Tax Relief Rate | What £1,000 gross pension contribution actually costs you |
|---|
| Basic rate (20%) | 20% | £800 |
| Higher rate (40%) | 40% | £600 |
| Additional rate (45%) | 45% | £550 |
Scottish taxpayers have different income tax rates, which affects how relief is claimed. Relief is automatically added at the basic rate for most pension schemes. Higher and additional rate taxpayers need to claim the extra relief through Self Assessment.
Scotland
| Tax Band | Tax Relief Rate | Net Cost of £1,000 Gross |
|---|
| Starter/Basic (19–20%) | 20% at source | £800 |
| Intermediate (21%) | Claim extra 1% via Self Assessment | ~£790 |
| Higher (42%) | Claim extra 22% via Self Assessment | ~£580 |
| Advanced (45%) | Claim extra 25% via Self Assessment | ~£550 |
| Top (48%) | Claim extra 28% via Self Assessment | ~£520 |
How to Claim Higher/Additional Rate Relief
Basic rate tax relief is added automatically by most pension schemes — either the scheme claims it from HMRC (relief at source) or your employer deducts contributions before PAYE is applied (net pay). Higher and additional rate taxpayers must claim their extra relief separately.
| Method | How |
|---|
| Self Assessment | Declare contributions on your tax return — HMRC extends your basic rate band |
| Phone HMRC | Request a tax code adjustment for ongoing relief |
| Net pay scheme | Employer deducts before tax — full relief automatic |
Defined Benefit Pension Rules
Defined benefit (DB) pensions — also called final salary or career average schemes — accrue pension entitlement differently from defined contribution pensions. Rather than a pot of money growing in value, you build up a guaranteed income entitlement based on salary and service. HMRC uses a formula to convert this annual entitlement into a pension “input amount” for Annual Allowance purposes.
The formula multiplies the increase in your annual entitlement during the year by a factor of 16. This is intended to approximate the capital cost of that income, on the assumption that £1 of annual pension is roughly equivalent to £16 of capital (a 16:1 ratio).
DB Allowance Calculation
| Step | Calculation |
|---|
| 1 | Take your annual pension entitlement at the end of the scheme year |
| 2 | Subtract entitlement at the start (uprated by CPI) |
| 3 | Multiply by 16 |
| 4 | Add any lump sum increase |
| 5 | Result = pension input amount — counts towards £60,000 Annual Allowance |
DB Example
| Item | Amount |
|---|
| Pension at year start | £25,000/year |
| After CPI uplift (3%) | £25,750/year |
| Pension at year end | £27,500/year |
| Increase | £1,750/year |
| × 16 multiplier | £28,000 pension input amount |
This £28,000 counts towards the £60,000 Annual Allowance. In this example the person has £32,000 of remaining allowance for the year (£60,000 minus £28,000).
Annual Allowance Charge
If your total pension contributions in a tax year exceed the Annual Allowance (after carry forward), you must pay a tax charge on the excess. The charge is calculated at your marginal income tax rate — so for a higher rate taxpayer, every pound above the allowance triggers a 40% charge. This largely cancels out the tax relief benefit of the excess contribution.
How the Charge Works
| Item | Detail |
|---|
| Charge rate | Your marginal income tax rate |
| What is charged | The amount by which contributions exceed your allowance |
| Payment | Via Self Assessment tax return |
| Scheme Pays | Option to ask your pension to pay if the charge exceeds £2,000 |
Annual Allowance Charge Example
| Scenario | Calculation |
|---|
| Total contributions | £75,000 |
| Annual allowance (including carry forward) | £60,000 |
| Excess | £15,000 |
| Tax band | 40% |
| Annual Allowance charge | £6,000 |
Scheme Pays
If your Annual Allowance charge exceeds £2,000 and the excess was caused by mandatory contributions (not voluntary carry forward), you can elect for your pension scheme to pay the charge on your behalf. The scheme reduces your pension entitlement accordingly. This can be useful if you do not have the cash to pay the charge directly but does permanently reduce your pension.
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 pension relief) |
| 5 April 2027 | End of 2026/27 tax year — last chance to use 2026/27 allowance |
Useful Links
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) |
Useful Links