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.