01

The standard annual allowance

The pension annual allowance is 60,000 in 2026/27 - the total gross contributions (employer plus employee plus third party) that can be made to all registered pension schemes while remaining eligible for tax relief. Contributions above the allowance are subject to an annual allowance charge that claws back the relief given on the excess.

For DC schemes the allowance is measured against actual contributions paid. For DB schemes an annual input calculation determines the deemed contribution broadly the increase in accrued benefit multiplied by a factor of 16. The allowance applies across all pension schemes.

02

Carry forward rules

Carry forward allows unused annual allowance from the three previous tax years to be added to the current year allowance. With unused allowance in 2023/24 2024/25 and 2025/26 you can contribute up to 180,000 in 2026/27 in a single year. You must have been a member of a registered pension scheme in each year from which you carry forward but need not have made contributions.

You must use the current year full 60,000 allowance before drawing on carry forward from earlier years. Carry forward is most valuable for business owners with variable income using a high-profit year to make a large pension contribution.

03

Tapered annual allowance

For every 2 by which adjusted income exceeds 260,000 the annual allowance reduces by 1 down to a minimum of 10,000. Adjusted income is total income plus employer pension contributions. Threshold income must also exceed 200,000 for tapering to apply.

For someone with adjusted income of 360,000 the taper reduces the allowance by 50,000 to 10,000. Many high earners inadvertently breach their tapered allowance without realising particularly where employer contributions are large or variable.

04

Money purchase annual allowance

The money purchase annual allowance (MPAA) of 10,000 applies once you have flexibly accessed funds from a DC pension. Taking even a single drawdown payment triggers the MPAA permanently reducing your DC contribution allowance from 60,000 to 10,000. The MPAA cannot be increased by carry forward and once triggered the 10,000 limit applies permanently.

This makes the timing of pension drawdown critically important for anyone who still has earned income and wants to continue making significant pension contributions.

05

Employer contributions and salary sacrifice

Employer contributions to registered pension schemes are not subject to income tax or NIC. Salary sacrifice allows employees to give up salary in exchange for increased employer pension contributions saving NI for both employer and employee. The employer NI saving of 15% on salary above the secondary threshold can be passed to the employee as additional pension contribution.

For higher rate taxpayers using salary sacrifice the effective combined tax relief of 40% income tax plus 2% employee NI plus potentially 15% employer NI is significantly above the headline 40% rate.