Understanding the Pension Annual Allowance
The pension annual allowance limits how much you can contribute to pensions in a tax year while still receiving tax relief. For 2025-26, the standard annual allowance is £60,000. If you exceed this (including carry forward), the excess is subject to a tax charge.
Tapered Annual Allowance
If your adjusted income exceeds £260,000, your annual allowance is reduced by £1 for every £2 over the threshold. The minimum tapered allowance is £10,000. Adjusted income includes employer pension contributions, so total remuneration is what matters. This taper primarily affects high earners and directors.
Carry Forward Rules
You can carry forward unused annual allowance from the previous three tax years. The oldest year is used first. To use carry forward, you must have been a member of a registered pension scheme in those years. This is a powerful tool for making large one-off contributions, such as when receiving a bonus or selling a business.
Frequently Asked Questions
Do employer contributions count towards the annual allowance?â–¾
Yes. The annual allowance applies to the total of all pension contributions — both employee and employer. This includes salary sacrifice arrangements, where the contribution is technically made by the employer. Both the employee and employer portions count towards the same £60,000 limit.
How do I report an annual allowance excess?â–¾
If you exceed the annual allowance, you must declare this on your self-assessment tax return. The excess is added to your taxable income for the year. If the tax charge exceeds £2,000, you can ask your pension scheme to pay the charge from your pension pot through a scheme pays arrangement.
What is the Money Purchase Annual Allowance?â–¾
If you have flexibly accessed your pension (e.g., taken drawdown income), your annual allowance for money purchase contributions is reduced to £10,000. This is the Money Purchase Annual Allowance (MPAA). You cannot use carry forward to supplement the MPAA. This is an important consideration when planning pension access alongside ongoing contributions.
Calclypso Editorial Team
Annual allowance rules verified against HMRC 2025-26 guidance. Last updated: April 2026. This is a simplified calculator. For complex situations, consult a pension specialist.