Annual Allowance
The maximum amount you can contribute to registered pension schemes each tax year while still receiving tax relief, currently set at £60,000. Contributions above this limit are subject to the Annual Allowance Charge, which effectively claws back the tax relief. High earners may have their Annual Allowance reduced via the Tapered Annual Allowance.
How it works
The Annual Allowance counts every contribution made into your pension in a tax year, including your own contributions, any employer contributions, and the value of tax relief added on top — not just what leaves your own bank account. If you belong to more than one pension scheme, all your Pension Input Amounts are added together against the single £60,000 limit, not tested separately per scheme.
Exceeding the Annual Allowance triggers the Annual Allowance Charge, which effectively removes the tax relief you received on the excess by adding it back to your taxable income, or in some cases letting the pension scheme pay the charge directly from your pot. High earners with adjusted income above £260,000 may find their allowance reduced well below £60,000 under the Tapered Annual Allowance, down to a minimum of £10,000.
You report an Annual Allowance Charge through Self Assessment, and pension providers are required to tell you if your Pension Input Amount with them exceeds the standard allowance. Anyone expecting to exceed the limit — for example after a large bonus or an employer contribution top-up — should check whether unused allowance from the previous three tax years can be brought forward first.
Example: exceeding the Annual Allowance
Suppose you contribute £70,000 into your pension in a tax year with no unused allowance carried forward from previous years — £10,000 more than the £60,000 Annual Allowance.
The £10,000 excess is added to your taxable income and taxed at your marginal rate. For a higher-rate taxpayer paying 40% tax, that works out to an Annual Allowance Charge of £4,000.
Frequently asked questions
Does the Annual Allowance include employer pension contributions?
Yes. Employer contributions count towards the £60,000 limit alongside your own contributions and the tax relief added by HMRC, not just what you personally pay in.
What happens if I go over the Annual Allowance?
You face the Annual Allowance Charge, which claws back the tax relief on the excess by adding it to your taxable income for the year, usually reported via Self Assessment.
Can high earners have a lower Annual Allowance?
Yes. The Tapered Annual Allowance reduces the standard £60,000 limit for people with adjusted income above £260,000, down to a minimum of £10,000.
Related Terms
Pension Tax Relief
A government top-up on pension contributions that effectively returns income tax paid on the contributed amount, making pensions a highly tax-efficient saving vehicle.
Tapered Annual Allowance
A reduced Annual Allowance for individuals whose adjusted income exceeds £260,000, with the allowance reduced by £1 for every £2 of income above that threshold.
Carry Forward
A pension allowance rule that lets you use any unused Annual Allowance from the previous three tax years, potentially allowing contributions well above the current year's £60,000 limit.
Salary Sacrifice
An arrangement where you give up part of your salary in exchange for a non-cash benefit such as employer pension contributions, a cycle-to-work scheme, or an electric car.
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