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
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