What is Pension Annual Allowance?
The maximum amount you can contribute to pensions each year with tax relief — currently £60,000.
Key Facts
- ✓ Standard annual allowance: £60,000 (2025/26)
- ✓ Or 100% of UK earnings, whichever is lower
- ✓ Can carry forward unused allowance from previous 3 years
- ✓ Tapered for high earners: reduced from £260,000 adjusted income
- ✓ Minimum tapered allowance: £10,000
- ✓ Money Purchase Annual Allowance: £10,000
- ✓ Both employer and employee contributions count
Current Rates (2025/26)
- ▸ Annual allowance: £60,000
- ▸ Taper starts: £260,000 adjusted income
- ▸ Minimum: £10,000
- ▸ MPAA: £10,000
Explanation
The pension annual allowance is the maximum amount of pension savings you can make each year while still receiving tax relief. For 2025/26, the standard annual allowance is £60,000 or 100% of your UK earnings (whichever is lower). Contributions exceeding the annual allowance trigger an annual allowance charge at your marginal tax rate. However, you can carry forward unused allowance from the previous three tax years if you were a member of a registered pension scheme. For high earners with adjusted income above £260,000, the annual allowance is reduced (tapered) by £1 for every £2 of income above that threshold, down to a minimum of £10,000. The money purchase annual allowance (MPAA) of £10,000 applies if you have flexibly accessed your pension. Both employer and employee contributions count towards the annual allowance.
Try the calculator: Use our free calculator to see how pension annual allowance affects your finances.
Pension Tax Relief Calculator →Other Glossary Terms
The system HMRC uses to collect income tax and National Insurance directly from employee wages.
National InsuranceA UK tax on earnings and self-employed profits that funds the state pension, NHS, and benefits.
Personal AllowanceThe amount of income you can earn each year before paying income tax — currently £12,570.
Basic Rate (20%)The 20% income tax rate applied to taxable income between £12,571 and £50,270.
Higher Rate (40%)The 40% income tax rate applied to taxable income between £50,271 and £125,140.
Additional Rate (45%)The 45% income tax rate applied to taxable income above £125,140.
Frequently Asked Questions
What does pension annual allowance mean?
The maximum amount you can contribute to pensions each year with tax relief — currently £60,000.
Why does pension annual allowance matter?
Understanding pension annual allowance helps you make informed financial decisions and ensure you pay the correct amount of tax. Getting it wrong could mean overpaying or underpaying HMRC, which may result in penalties or missed savings. Use our calculators to see how pension annual allowance applies to your personal situation.
Where can I find more information about pension annual allowance?
HMRC publishes official guidance on GOV.UK for all UK tax topics. For a quick overview, our glossary entries are written in plain English and updated each tax year. You can also use our free online calculators to model different scenarios and understand how changes to your income, deductions, or allowances affect your overall tax position.