The Pension Annual Allowance Explained
There's a ceiling on how much can go into your pensions with tax benefits each year. In 2026/27 it's £60,000, and it counts everything: your money, the tax relief added to it, and your employer's contributions too. Most people never get near it. But if you're a strong earner, get a big bonus, or have flexibly accessed a pension already, the allowance (and its two smaller cousins) is worth understanding before the taxman explains it for you.
What counts towards the £60,000
For a defined contribution pension (workplace pots, SIPPs, personal pensions), the allowance counts the gross amount going in during the tax year (source: GOV.UK / MoneyHelper, July 2026):
- Your own contributions, including the basic-rate tax relief added on top. Pay in £8,000 and £10,000 counts against the allowance.
- Employer contributions, including anything paid through salary sacrifice (sacrificed pay becomes an employer contribution).
- Contributions to every pension you have, added together. The allowance is per person, not per pot.
Defined benefit schemes (final salary, career average) work differently: what counts is the growth in the value of your promised pension over the year, calculated by the scheme. If you're in one and contributing heavily elsewhere, ask the scheme for your "pension input amount".
Two caps, not one
The annual allowance is separate from the tax relief limit. Relief on your own contributions is capped at 100% of your UK earnings this year (£3,600 gross if you earn less than that). The £60,000 allowance sits on top and also counts employer money. Earn £30,000 and your personal contributions are capped by your earnings long before the annual allowance matters, but your employer could still contribute above that.
The taper: how high earners lose most of it
Earn enough and the allowance shrinks. The taper applies only if you cross both of these lines (source: GOV.UK, 2026/27):
- Threshold income over £200,000. Roughly, your total taxable income minus your own pension contributions.
- Adjusted income over £260,000. Roughly, your total income plus employer pension contributions.
Cross both and you lose £1 of allowance for every £2 of adjusted income above £260,000, until the allowance hits its floor of £10,000 at £360,000 of adjusted income.
| Adjusted income | Annual allowance 2026/27 |
|---|---|
| £260,000 or below | £60,000 |
| £280,000 | £50,000 |
| £310,000 | £35,000 |
| £360,000 and above | £10,000 |
The threshold income test matters because it gives some people an escape hatch: a large personal pension contribution can pull threshold income back under £200,000 and switch the taper off entirely. That's a calculation worth paying an adviser to check rather than guessing.
The MPAA: the £10,000 trap after you've taken money out
Flexibly take taxable money out of a defined contribution pension (not just the 25% tax-free lump sum) and you usually trigger the Money Purchase Annual Allowance. From that point on, only £10,000 a year can go into defined contribution pensions, and carry forward no longer works for them. It's permanent, and it catches people who dip into a pension at 55 while still working and paying in. If you might want to keep contributing, think hard before taking taxable withdrawals.
What happens if you go over
Nothing is blocked and nobody stops the payment. Instead, the excess triggers an annual allowance charge that claws back the tax relief, at your marginal income tax rate, reported through Self Assessment.
Priya's contributions total £70,000 this year against a £60,000 allowance, with no unused allowance to carry forward. The £10,000 excess is added to her income and taxed at her marginal rate. As a 40% taxpayer she owes a £4,000 charge.
If the charge is over £2,000 and the contributions to one scheme exceeded the standard allowance, she can usually ask that scheme to pay it from her pot instead of finding the cash herself. This is called Scheme Pays.
Before any charge applies, though, check carry forward. Unused allowance from the three previous tax years can soak up the excess, and most one-off breaches disappear once it's counted. Our carry forward guide walks through the maths.
What would bigger contributions do?
Try different contribution levels in the free calculator and see what they turn into by retirement.
Try the calculator →Common questions
What is the annual allowance for 2026/27?
£60,000, covering your contributions, the tax relief on them, and employer contributions across all your pensions. High earners can see it tapered to as little as £10,000, and the MPAA limits some people to £10,000.
What counts towards it?
For defined contribution pensions, the gross amount of everything paid in: your contributions plus tax relief, and employer money. For defined benefit schemes, the growth in your promised pension over the year, which your scheme calculates.
What happens if I go over?
An annual allowance charge claws back the relief on the excess at your marginal tax rate, via Self Assessment. Charges over £2,000 can often be paid from your pension through Scheme Pays. Check carry forward first, it usually absorbs one-off breaches.
Is this the same as the tax relief limit?
No. Tax relief on your own contributions is capped at 100% of your earnings (or £3,600 gross for non-earners). The annual allowance is a separate ceiling that also counts employer contributions. You need to stay within both.
Sources
- Annual allowance £60,000 and annual allowance charge rules: GOV.UK / HMRC Pensions Tax Manual.
- Tapered annual allowance (threshold income £200,000, adjusted income £260,000, £10,000 floor): GOV.UK; MoneyHelper.
- Money Purchase Annual Allowance £10,000 and Scheme Pays conditions: GOV.UK. Figures correct as of July 2026.
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This article is for general information only and does not constitute financial advice. Allowance calculations depend on your personal circumstances, contribution history and scheme type; figures relate to the 2026/27 tax year and are correct as of July 2026. For advice tailored to you, speak to a financial adviser regulated by the Financial Conduct Authority (FCA), or get free guidance from MoneyHelper.