Annual Allowance 101

The £60,000 Limit

The Annual Allowance is the limit on how much money can be contributed to your pension each tax year while still receiving tax relief.

For the 2025/26 tax year, this standard limit is £60,000.

This applies to the total contribution, including:

Your personal payments
Employer payments
Tax relief added by the government

Important: Watch Out

If you exceed this limit, you won't get tax relief on the excess, and you will essentially be taxed as if that money were income.

Can I pay in more? (Carry Forward)

Yes, potentially. If you haven't used your full allowance in previous years, you can "carry forward" unused allowance from the last 3 tax years.

This is great for:

Investing a large bonus
Catching up on retirement savings
Business owners having a good year

You must have been a member of a UK registered pension scheme during those years (even if you contributed £0).

The Catch for High Earners (The Taper)

If you are a very high earner, your Annual Allowance might be lower than £60,000.

This is called the Tapered Annual Allowance. It kicks in if:

Threshold Income (Net income) is over £200,000
Adjusted Income (Income + Pension contributions) is over £260,000

For every £2 your Adjusted Income goes over £260,000, your allowance is reduced by £1.

Minimum Allowance: The taper stops at £10,000. This means anyone earning over £360,000 usually has a capped allowance of £10k.

Be Careful: The Money Purchase Annual Allowance (MPAA)

Guidance Warning

Have you already taken money out of a pension flexibly?

If you have accessed taxable cash from a pension pot (flexi-access drawdown), your future Annual Allowance might permanently drop to just £10,000. This is to stop people "recycling" tax-free cash back into pensions.

Summary

Standard Limit: £60,000 per year.
Use History: You can carry forward unused allowance from 3 prior years.
High Earners: Watch out for the Taper if earning >£260k.
Drawdown: Be careful if you've already accessed pension cash.

Guidance, not advice.

Pension tax rules can be complex. If you are close to these limits, consider seeking professional financial advice.

This guide is for educational purposes only and does not constitute financial advice.