UK Pension Allowances Guide (£60k Annual Allowance, Taper)

Annual Allowance

The annual allowance for 2026/27 is £60,000. This is the total amount that can be paid into all your pensions (DC and DB combined) in a single tax year without triggering an annual allowance tax charge. The £60,000 includes: your own personal contributions (getting tax relief), employer contributions, and the deemed contribution for DB pension accrual (calculated as 16 x the increase in your annual pension). For defined benefit schemes, the annual allowance test is based on the pension input amount — the increase in the value of your benefits over the tax year (opening value vs closing value, adjusted for inflation). If your total pension input exceeds the annual allowance, the excess is added to your income and taxed at your marginal rate. The allowance has changed over time: it was £255,000 in 2010/11, reduced to £50,000 in 2011/12, £40,000 from 2014/15 to 2022/23, and then increased to £60,000 in 2023/24. If you have carry forward from previous years, you may be able to contribute more than £60,000 in a given year. The annual allowance applies per individual, not per scheme — contributions to all your pensions are aggregated. SIPP contribution rules →

Tapered Annual Allowance

The tapered annual allowance reduces the £60,000 limit for high earners. If your adjusted income (net income + employer pension contributions) exceeds £260,000, your annual allowance is reduced by £1 for every £2 of excess income above £260,000, down to a minimum of £10,000 per year. There is also a threshold income test — if your threshold income (total taxable income minus personal contributions) is £200,000 or less, the taper does not apply even if adjusted income exceeds £260,000. This two-part test means many people with adjusted income over £260,000 but threshold income under £200,000 avoid the taper. The taper is complex and catches many unsuspecting professionals, particularly doctors, senior executives, and business owners. The reduction in the annual allowance can make additional pension saving tax-inefficient for high earners. Strategies to manage the taper include: reducing employer pension contributions (opting out of the pension scheme and taking higher salary instead), careful timing of contributions, using carry forward from years when the taper did not apply, and considering ISAs as an alternative tax wrapper. The minimum tapered allowance of £10,000 still allows meaningful pension saving. Allowance planning →

Money Purchase Annual Allowance (MPAA)

The Money Purchase Annual Allowance (MPAA) is a reduced annual allowance that applies to DC (money purchase) contributions once you start taking flexible pension income. The MPAA for 2026/27 is £10,000. It is triggered when you: take income from a flexi-access drawdown fund, take a UFPLS (uncrystallised funds pension lump sum), or take an uncrystallised funds pension lump sum (which is different from UFPLS). The MPAA is not triggered by: taking only your 25% tax-free cash without entering drawdown, buying an annuity (which is a "crystallisation" event but does not trigger the MPAA), or taking a small pot lump sum (pots under £10,000) or trivial commutation lump sums. Once triggered, the MPAA reduces your DC annual allowance to £10,000. This limit applies only to DC contributions — you can still contribute up to the full £60,000 to DB schemes (if your DB allowance permits). The MPAA means that once you start drawing a flexible pension income, you cannot rebuild your pension pot at the same rate. This is a key consideration for people who want to "retire and return to work" or take a phased retirement. If you plan to continue working and saving, avoid triggering the MPAA by taking only tax-free cash and leaving the rest uncrystallised. Drawdown and MPAA →

Carry Forward

Carry forward allows you to contribute more than the standard annual allowance in a tax year by using unused allowance from the previous 3 tax years. The rules: you must have been a member of a UK-registered pension scheme during each carry forward year (being a member of any scheme qualifies — you do not need to have contributed). You use the current year's allowance first, then the oldest year's unused allowance first. The maximum carry forward is limited to the unused allowance from the previous 3 years. Carry forward is available for both DC and DB schemes. For example, in 2026/27, you can contribute £60,000 (current year) plus any unused allowance from 2025/26, 2024/25, and 2023/24. If you used no allowance in those 3 years, you could contribute £60,000 + £60,000 + £60,000 + £60,000 = £240,000 in 2026/27 (provided you have sufficient UK earnings to receive tax relief on personal contributions). The taper affects carry forward — if your allowance was tapered in previous years, the unused allowance reflects the tapered figure, not the full £60,000. Carry forward is a powerful tool for making large catch-up contributions, particularly for people who have recently sold a business or received a bonus. SIPP contributions →

Lifetime Allowance

The Lifetime Allowance (LTA) was abolished from 6 April 2024. Previously, the LTA imposed a maximum on pension savings — anyone with total benefits above £1,073,100 faced a 55% charge on excess lump sums or 25% on excess income. The LTA charge no longer applies. However, two new allowances were introduced to replace it: the Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA). The LSA sets the maximum tax-free cash you can take across your lifetime at £268,275 (25% of the previous LTA standard amount). The LSDBA sets the total lump sums (tax-free cash + death benefit lump sums) at £1,073,100. If you have pension protection (Enhanced, Primary, Fixed, or Individual Protection), your LSA may be higher. The abolition of the LTA charge is beneficial for those with large pension pots — there is no longer a penalty for pension savings above £1,073,100, though lump sums above the LSA are taxed as income. The LTA abolition also simplifies pension planning for high earners and those with significant DB pensions. However, the annual allowance taper and MPAA remain in place, limiting how quickly you can build a large pension. Tax-free cash rules →

Annual Allowance Charge

If your total pension contributions (including employer contributions and DB pension growth) exceed your available annual allowance (including carry forward), you are subject to the annual allowance charge. The excess amount is added to your taxable income for the year and taxed at your marginal rate. The charge is collected through self-assessment — you report the excess and pay the tax. For defined benefit schemes, you can request that the scheme pays the charge on your behalf (a scheme pays election), which reduces your DB benefits rather than requiring you to pay from other funds. The annual allowance charge is designed to be neutral — you get tax relief on contributions but pay tax on excess contributions at the same rate. However, the charge can be a significant cash flow issue for DB members who have a high pension input amount without actual cash contributions. The annual allowance charge is calculated on each individual's tax position — if the excess pushes you into a higher tax bracket, those higher rates apply. Careful planning with carry forward and contribution timing can usually avoid the annual allowance charge. If you have complex pension arrangements (multiple DB schemes, large employer contributions), professional advice is recommended to manage the annual allowance. Pension consolidation →

Future of Pension Allowances

The UK pension allowance system has undergone significant changes in recent years and further reform is likely. The Lifetime Allowance was abolished in April 2024 but replaced with a system of Lump Sum Allowance (LSA) of £268,275 and Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100. These effectively cap the tax-free lump sum you can take from your pension rather than the total value of your pension. This change simplified the system but still requires careful tracking of pension values against the new allowances. The Annual Allowance increased from £40,000 to £60,000 in April 2023, and the Money Purchase Annual Allowance increased from £4,000 to £10,000. These increases were welcomed by higher earners and those who had accessed their pension, but they also increase the tax relief cost to the Treasury. Future governments may consider reducing the Annual Allowance or tightening the tapered annual allowance rules to raise revenue. The triple lock on the State Pension is another source of fiscal pressure — the State Pension cost £110 billion in 2024/25 and is projected to rise significantly. Potential reforms include removing the triple lock, applying it only to the basic State Pension, or uprating the State Pension by earnings rather than the highest of inflation, earnings, or 2.5%. For higher earners, the tapered annual allowance rules may be simplified or made less generous. The current system where the Annual Allowance reduces from £60,000 to £10,000 for those with adjusted income over £260,000 is complex and unpopular. Any changes to pension allowances should be monitored closely through HM Treasury consultations and announcements in the annual Budget and Autumn Statement.

FAQs

What is the difference between threshold income and adjusted income?

Threshold income is your total taxable income minus any personal pension contributions made under relief at source. If your threshold income is £200,000 or less, the taper does not apply. Adjusted income is threshold income plus employer pension contributions. The taper applies if adjusted income exceeds £260,000 and threshold income exceeds £200,000.

Can I use carry forward if I was not in a pension scheme?

No. To use carry forward for any given year, you must have been a member of a UK-registered pension scheme in that year. Being a member of any scheme qualifies — even if you made no contributions. If you were not a member, you cannot carry forward that year's unused allowance.

How does the annual allowance work for DB pensions?

For DB pensions, the pension input amount is calculated as 16 x (the increase in your annual pension over the tax year) plus any automatic lump sum increase. For example, if your annual pension increases by £3,750, the input amount is £60,000. This is the value used for the annual allowance test.

What happens if I exceed the annual allowance?

The excess is added to your income for the year and taxed at your marginal rate via self-assessment. You must report the annual allowance charge in your tax return. For DB schemes, you can ask the scheme to pay the charge on your behalf (scheme pays), which reduces your DB benefits.

Can I contribute to my pension if I have no UK earnings?

Yes, you can contribute up to £3,600 gross (£2,880 net) per year to a personal pension or SIPP without having UK earnings. The government adds basic-rate tax relief (20%). You cannot contribute more than your earnings unless using this £3,600 basic amount.