The Pension Annual Allowance: How the £60,000 Limit Works
The annual allowance caps how much can go into your pensions each tax year with tax relief. Exceed it and a tax charge claws the relief back.
What is the annual allowance?
The annual allowance is the maximum amount that can be paid into your pensions in a tax year while still benefiting from tax relief. For 2026/27 the standard allowance is £60,000.
What counts towards it?
- Your own contributions (gross of basic-rate relief)
- Employer contributions, including salary-sacrifice amounts
- Third-party contributions made on your behalf
- For defined benefit schemes, the growth in the value of your promised benefits (the "pension input amount")
Two important limits, often confused
The annual allowance is not the same as the tax-relief limit on your own contributions. Personal contributions only attract relief up to 100% of your relevant UK earnings (or £3,600 gross if you earn less). Employer contributions are not limited by your earnings but do count towards the annual allowance.
Example: Sam earns £45,000 and their employer pays £20,000 into their pension. Sam can personally contribute up to £45,000 gross with tax relief, but total inputs of £65,000 would exceed the £60,000 annual allowance – unless Sam has unused allowance to carry forward from earlier years.
What happens if you exceed it?
You don't pay a penalty as such – instead an annual allowance charge adds the excess to your taxable income, which effectively claws back the tax relief. In some cases the scheme can pay the charge for you ("scheme pays"), reducing your pension pot instead.
Reduced allowances to watch
- Tapered annual allowance – high earners can see the allowance reduced to as little as £10,000
- Money purchase annual allowance (MPAA) – a £10,000 limit on money purchase savings once you've flexibly accessed a pension
The rules interact in ways that are easy to get wrong, particularly if you have several pensions or variable income. A financial adviser can confirm your exact position before you commit to a large contribution.
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