The pension annual allowance explained (and the traps to avoid)

Pensions are one of the most tax-efficient ways to save, but there are limits on how much you can put in each year while still getting tax relief. Understanding the annual allowance - and a few traps that can catch people out - helps you make the most of the benefits without an unexpected tax charge.

For most people, the standard annual allowance is £60,000 for the 2026/27 tax year. It measures total pension input, including personal and employer contributions and, where relevant, defined benefit pension growth. Separately, tax relief on personal contributions is generally limited to the higher of £3,600 gross or 100% of relevant UK earnings. Employer contributions are not restricted by the employee's earnings in the same way, although they still count towards the annual allowance.

When you pay into a pension, the Government effectively refunds the tax you paid on that money. A basic-rate taxpayer sees £80 become £100 in the pension. Higher and additional-rate taxpayers can claim further relief, often through their tax return, making pensions especially efficient for them. This relief is one of the main reasons pensions remain such a powerful savings vehicle, even after recent changes elsewhere.

If you have not used your full allowance in the previous three tax years, you may be able to 'carry forward' unused allowance and have pension input of more than £60,000 in one year, provided you were a member of a registered pension scheme in the relevant earlier years. Where the larger contribution is being made personally, the separate relevant UK earnings limit for tax relief still applies. Employer contributions are not restricted by the employee's earnings in the same way.

Three situations reduce your allowance and catch people out:

• The tapered annual allowance: for 2026/27, tapering can apply where threshold income is more than £200,000 and adjusted income is more than £260,000. The £60,000 allowance is reduced by £1 for every £2 of adjusted income above £260,000, subject to a minimum tapered allowance of £10,000. The definitions and adjustments are detailed, so high earners should check the calculation carefully.
• The money purchase annual allowance (MPAA): once you have flexibly accessed a defined contribution pension - for example, taking taxable income from drawdown - the amount you can pay into money-purchase pensions typically drops to £10,000 a year. Taking that first flexible withdrawal is a decision worth understanding before you make it.
• Exceeding the allowance: contributions above your allowance can trigger a tax charge that claws back the relief, so it is best to plan contributions with the limits in mind.

Many employees boost their pensions through salary sacrifice, which also saves National Insurance. From April 2029, that National Insurance saving will be capped: only the first £2,000 of salary-sacrificed pension contributions each year will be free of National Insurance, with contributions above that attracting it. Income Tax relief on pension contributions is unaffected, and for many modest contributors the change will make no difference - but higher contributors may want to factor it into longer-term planning.

We check your available allowance - including carry forward and any taper - so you can contribute confidently without an unexpected tax charge