The tapered annual allowance (TAA) restricts pension contributions for high earners. It applies where threshold income exceeds £200,000 and adjusted income exceeds £260,000. For every £2 of adjusted income above £260,000, the annual allowance reduces by £1 — down to a minimum of £10,000.
Key Thresholds for 2026/27
| Threshold | Amount |
|---|---|
| Standard annual allowance | £60,000 |
| Threshold income trigger | £200,000 |
| Adjusted income trigger | £260,000 |
| Minimum tapered allowance | £10,000 |
| Adjusted income for minimum allowance | £360,000+ |
What Is Threshold Income?
Threshold income is total taxable income minus personal pension contributions. It does not include employer contributions. If your threshold income is £200,000 or below, the taper does not apply — making salary sacrifice a powerful planning tool.
What Is Adjusted Income?
Adjusted income is threshold income plus all pension contributions including employer contributions. This is the figure used to calculate how much the annual allowance is reduced.
Worked Example
James earns £280,000. His employer contributes £30,000 to his pension. He makes no personal contributions.
- Threshold income: £280,000 (taper applies)
- Adjusted income: £310,000
- Excess over £260,000: £50,000
- Reduction: £25,000
- James’s annual allowance: £35,000
5 Planning Strategies
- Salary sacrifice — can reduce threshold income below £200,000, switching off the taper entirely
- Carry forward — unused allowance from the prior 3 years can offset years where the taper bites
- Spouse contributions — maximise contributions into a lower-earning spouse’s pension
- Bonus timing — deferring a bonus into the next tax year can shift adjusted income below the trigger
- Scheme pays — where an annual allowance charge exceeds £2,000, the pension scheme can pay it directly
Get Specialist Advice
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This article is for general information. Tax rules can change. Always consult a qualified financial adviser.