The pension Annual Allowance (AA) is the maximum amount that can be added to your pension each year and still receive tax relief. In 2026/27 it is £60,000 — including employee, employer and tax-relief contributions. High earners face a tapered annual allowance reducing to a minimum of £10,000. Excess contributions trigger a charge at your marginal income tax rate.
What counts toward the Annual Allowance
The Annual Allowance is the total of three things in any tax year:
- Your gross contributions (including tax relief). E.g. £4,000 net into SIPP = £5,000 gross.
- Employer contributions (including salary sacrifice).
- For defined benefit schemes: the "pension input amount" — the increase in your accrued pension benefit × 16, plus inflation adjustments.
Common AA mistakes happen when people forget to count everything. A £20,000 SIPP contribution + £8,000 workplace pension + £6,000 employer match = £34,000 of AA used.
The tapered annual allowance for high earners
If your threshold income exceeds £200,000 AND your adjusted income exceeds £260,000, the £60,000 Annual Allowance tapers down:
- Reduce £60,000 by £1 for every £2 of adjusted income above £260,000
- Minimum tapered AA: £10,000 (reached at adjusted income £360,000+)
| Adjusted income | Tapered AA |
|---|---|
| Up to £260,000 | £60,000 |
| £280,000 | £50,000 |
| £300,000 | £40,000 |
| £320,000 | £30,000 |
| £340,000 | £20,000 |
| £360,000+ | £10,000 (floor) |
"Threshold income" is broadly total income minus salary-sacrificed pension contributions. "Adjusted income" adds back all pension contributions. The taper only bites if BOTH thresholds are crossed.
Carry-forward — using unused allowance from prior years
If you haven't used your full Annual Allowance in any of the previous 3 tax years, you can carry forward the unused capacity into the current year. To use carry-forward you must:
- Have been a member of a UK-registered pension scheme in those prior years
- Have earned at least the gross contribution you're trying to make in the current year
- Use the current year's allowance first, then earliest carry-forward first
So someone with £20,000 unused AA from 2023/24, £15,000 from 2024/25 and £10,000 from 2025/26 could theoretically contribute £60,000 (current AA) + £45,000 (carry-forward) = £105,000 in 2026/27 — subject to having that level of earnings.
What happens if you exceed the AA
Contributions above the AA don't reverse — they still go into the pension. But the excess triggers an Annual Allowance charge:
- The excess is added to your taxable income for the year
- Taxed at your marginal income tax rate (20%/40%/45%)
- You pay the charge via Self Assessment, OR via "Scheme Pays" if the excess and the charge are over £2,000
"Scheme Pays" lets you direct the pension scheme to pay the AA charge from your pot (reducing your eventual pension). Useful if the charge is large.
Check your AA position precisely
The pension annual allowance calculator handles tapering, carry-forward, employer contributions and defined benefit accrual.
Open the AA calculator →Sources and methodology
Annual Allowance rules from gov.uk/tax-on-your-private-pension/annual-allowance. Taper details and Scheme Pays from HMRC Pensions Tax Manual.
UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial advice — see the content disclaimer for the full position. The methodology page documents how every calculator is built and reviewed.
Related
- Pension annual allowance calculator — with taper and carry-forward
- Pension carry-forward calculator — compute available headroom from prior years
- Pension tax traps — common AA pitfalls
- What is the Lump Sum Allowance? — the related lifetime cap on tax-free cash
- Full UK money glossary
- FAQ library
A worked taper example
The taper trips up high earners because the two income tests use different definitions, and the calculation works on adjusted income. Take a consultant earning a £210,000 salary in 2026/27 who also receives a £40,000 employer pension contribution and pays £15,000 of their own into a SIPP (£12,000 net grossed up to £15,000):
- Threshold income is broadly taxable income less the individual's own gross pension contributions: roughly £210,000 − £15,000 = £195,000. This is below £200,000 — but only just, and any bonus or other income could push it over.
- Suppose a £20,000 bonus lifts salary-equivalent income so threshold income reaches £215,000. Both gates are now open, so the taper applies.
- Adjusted income adds back all pension contributions: £230,000 salary + £40,000 employer + £15,000 personal = £285,000.
- Adjusted income exceeds £260,000 by £25,000. The allowance reduces by £1 for every £2 over, i.e. £12,500. So the tapered Annual Allowance is £60,000 − £12,500 = £47,500.
Total contributions of £75,000 (£20,000 personal + £40,000 employer, plus relief) against a £47,500 allowance would leave an excess unless carry-forward from earlier years soaks it up. The lesson: model both income figures before the tax year ends, because a single bonus can open the taper and cut your allowance by tens of thousands.
The Money Purchase Annual Allowance (MPAA)
The moment you flexibly access a defined contribution (money purchase) pension — typically by taking taxable income from flexi-access drawdown or an UFPLS lump sum — a separate, much lower limit replaces your £60,000 allowance for money purchase contributions. In 2026/27 the Money Purchase Annual Allowance is £10,000.
Several points catch people out:
- Taking only the 25% tax-free cash does not trigger it. The MPAA is set off by taking taxable income — once you draw a taxable penny beyond the tax-free lump sum, the clock starts.
- Once triggered, the £10,000 applies to all your money purchase pensions combined — including ongoing workplace contributions.
- Carry-forward cannot be used for money purchase contributions once the MPAA applies. You are limited to £10,000 a year, full stop.
- Any defined benefit (final salary) accrual you still have is measured against a separate "alternative annual allowance" — broadly your normal allowance minus the £10,000.
This matters most for people who "test the water" by taking some pension income in their late 50s while still working. Drawing £1 of taxable income to top up a sabbatical can permanently cut the amount you can rebuild later from £60,000 to £10,000 a year. If you might keep contributing, taking only the tax-free element — or a small UFPLS structured to stay within the cash entitlement — preserves the full allowance.
Annual Allowance vs the Lump Sum Allowance
It is easy to muddle the Annual Allowance with the allowances that replaced the old Lifetime Allowance in April 2024. They control completely different things:
| Allowance | What it limits | 2026/27 level |
|---|---|---|
| Annual Allowance | Tax-relieved contributions in each tax year | £60,000 |
| Lump Sum Allowance (LSA) | Total tax-free cash you can take across your lifetime | £268,275 |
| Lump Sum & Death Benefit Allowance (LSDBA) | Tax-free lump sums in life and on death combined | £1,073,100 |
In short, the Annual Allowance is about how much goes in each year; the Lump Sum Allowance is about how much tax-free cash comes out over your lifetime. You can breach one without going near the other — for example, a large one-off employer contribution can exceed the Annual Allowance even though your pot is far below the Lump Sum Allowance limits. There is no longer any overall lifetime cap on the size of a pension pot; only the tax-free elements are capped. The full mechanics are covered in our LSA and LSDBA guide.
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