Annual Allowance 2026/27 Explained Updated for 2026/27

The annual allowance is the single biggest limit on how much you can save into pensions each tax year while still getting the full benefit of tax relief. For 2026/27, that limit is £60,000, and it applies across every pension you have, added together, not £60,000 per pension. Most people never come close to it, but it catches out high earners, business owners, and anyone making a large one-off contribution — from a bonus, an inheritance, or the sale of a business — without realising the limit exists. This guide explains exactly what counts towards the £60,000, what happens if you go over it, who is most likely to be affected, and how a separate rule called carry forward can help you use up allowance you did not need in previous years.

What the annual allowance actually is

The annual allowance is the maximum amount that can be paid into your pensions in a single tax year while still qualifying for tax relief, added up across every pension arrangement you belong to — your workplace pension, any personal pensions or SIPPs, and any pension you might have from a previous employer that is still receiving contributions. It is not a cap on how much you are allowed to save in total, and it does not stop you paying more in if you want to; it simply determines the point at which further contributions stop being tax-efficient and instead trigger a tax charge that claws back the relief you have received.

For most savers with a standard employment income and a single workplace pension, £60,000 is a very high bar. Someone earning £45,000 a year contributing 8% under auto-enrolment might see somewhere in the region of £3,000 to £4,000 a year go into their pension including employer contributions — a small fraction of the allowance. The annual allowance becomes relevant much more quickly for higher earners, for anyone whose employer makes generous contributions on their behalf, or for anyone deliberately front-loading pension saving in a particular year.

What counts towards the £60,000

This is the point that trips people up most, because it is not just what comes out of your own pay that counts. The annual allowance is measured against the total "pension input amount" for the year, which includes three things added together: your own contributions (whether paid personally or deducted from salary), your employer's contributions, and any tax relief added on top of your own contributions. It does not matter whether your own contribution was made through relief at source or a net pay arrangement — see our guide on how tax relief works for the difference between the two — both count towards the same overall figure once grossed up.

For members of defined benefit (final salary or career average) schemes, the calculation works differently again, based on the increase in the value of your promised future pension over the year, multiplied by a standard factor, rather than on cash contributions paid in. This can produce a surprisingly large "notional" contribution figure in a year where you receive a big promotion or pay rise, even though no extra cash contribution was actually made, which is one reason senior public sector staff — for example NHS consultants or senior civil servants — are disproportionately likely to be affected by the annual allowance.

What happens if you exceed the allowance

Going over the annual allowance does not mean your contribution is rejected or refunded. Instead, it triggers what is called an annual allowance charge: the amount you have contributed above the limit is added back to your taxable income for the year and taxed at your marginal rate, effectively clawing back the tax relief you received on the excess. In practice this means the relief you originally got on the amount over the allowance is reversed, so you end up no better off, tax-wise, for the excess portion, even though the money remains invested in your pension.

The charge is usually reported and paid through Self Assessment. If the charge is large enough — currently above £2,000 — and certain conditions are met, you may be able to ask your pension scheme to pay the charge on your behalf directly out of your pension pot, through an option called "scheme pays," rather than finding the cash yourself. This can be a useful option for anyone whose annual allowance charge arises from a one-off spike, such as a large employer contribution or a defined benefit accrual, rather than an ongoing pattern of over-contributing.

Who is typically affected

In practice, four groups of people are most likely to run into the annual allowance. First, high earners with generous employer pension contributions, where salary plus employer contribution plus personal contribution can add up quickly, particularly in sectors like finance, law, or senior corporate roles where employer contributions of 10% or more of a high salary are common. Second, business owners and company directors who make large employer contributions from their own company in a single tax year, often for tax planning reasons around company profits. Third, anyone receiving a large bonus who chooses to sacrifice most or all of it into their pension in one go, rather than spreading contributions evenly across the year. Fourth, senior members of defined benefit schemes, as described above, where a promotion or significant pay award can generate a large notional pension input amount without any extra contribution actually being paid.

It is also worth being aware of the tapered annual allowance, a separate rule that reduces the £60,000 limit for very high earners — broadly, those with total income (including pension contributions) above a high threshold — down to a minimum figure. This tapering mechanism has its own detailed rules and thresholds; our guide to the tapered annual allowance covers exactly how the reduction is calculated and who it applies to.

Worked example: using up the £60,000 in different scenarios

The table below shows how the £60,000 annual allowance is used up across a few illustrative contribution scenarios, to give a sense of how much headroom different savers typically have.

In the final row, the saver has gone £5,000 over the £60,000 limit for the year. Unless they have unused allowance from a previous year available to carry forward, that £5,000 will trigger an annual allowance charge, effectively taxing it at their marginal rate and cancelling out the relief they received on it. This is exactly the kind of situation where carry forward, covered in detail in our dedicated guide, can make the difference between an unwelcome tax bill and a fully tax-efficient contribution.

Carry forward: using unused allowance from previous years

If you have not used your full annual allowance in each of the previous three tax years, you may be able to carry forward the unused amount and add it to this year's £60,000, potentially allowing a much larger contribution in a single year without triggering a charge. This is particularly useful for anyone with irregular income, such as a business owner in a good trading year, or someone making a large contribution from an inheritance or the sale of an asset. There are conditions attached — broadly, you must have been a member of a registered pension scheme in each year you want to carry forward from, even if you did not contribute anything in that year — and the rules interact with the tapered annual allowance for high earners, so it is worth reading the detail in our carry forward guide before relying on it for a specific contribution.

How the allowance has changed over time

The annual allowance has moved around considerably over the years, and it is worth knowing this if you are trying to work out how much unused allowance you might have from previous tax years for carry forward purposes. It stood as high as £255,000 in the mid-2000s, before being reduced sharply over several rounds of cuts through the 2010s, reaching a low of £40,000 for many years. It was then raised again to £60,000 from April 2023, where it has remained since, alongside significant reforms around the same time that abolished the separate lifetime allowance entirely. Because the figure has been different in earlier years, anyone using carry forward needs to check the actual limit that applied in each of the three years they are carrying forward from, rather than assuming £60,000 applied throughout — our carry forward guide sets out the exact figures to use.

The money purchase annual allowance (MPAA)

There is a separate, much lower version of the annual allowance that applies once you have started drawing money flexibly from a defined contribution pension — for example, by taking a taxable lump sum or income through flexi-access drawdown, rather than simply taking your 25% tax-free lump sum. Once triggered, the money purchase annual allowance restricts further contributions to defined contribution pensions to a much smaller figure than the standard £60,000, and importantly, carry forward cannot be used to top up the MPAA itself. This rule exists specifically to stop people "recycling" pension money — withdrawing it to trigger tax relief twice on the same underlying funds — and it catches out some people who return to work, or increase their hours, after starting to draw a modest pension income earlier than expected. If you have started taking flexible pension income and are still working and contributing, it is well worth checking whether the MPAA applies to you before assuming the standard £60,000 figure still does.

Steps to check whether you might exceed the allowance

Checking your own position

Your pension provider is required to send you a "pension savings statement" if your pension input amount for a scheme exceeds the annual allowance in a tax year, or in certain other circumstances, which sets out the figures you need for your tax return. However, because the allowance is measured across all your pensions combined, you are responsible for adding up contributions across every scheme yourself if you have more than one — your provider generally only knows about the pension it administers, not any others you hold. If you have several pensions, or have changed jobs during the year, it is worth proactively checking total contributions rather than waiting for a statement that may never arrive if no single scheme individually exceeds the limit.

It is also sensible to review your position before the end of each tax year, rather than afterwards, since this is the point at which you still have the option to reduce a planned contribution, delay part of it into the following tax year, or make use of carry forward while there is still time to act. Waiting until you are completing a Self Assessment return the following January, well after the tax year has closed, removes most of the practical options available to you and leaves an annual allowance charge as close to unavoidable. Many employers and pension providers offer an annual statement or online dashboard specifically to help higher earners track this running total through the year, and it is worth using these tools proactively rather than reactively.

Quick recap

The annual allowance for 2026/27 is £60,000, covering your own contributions, your employer's contributions, and tax relief added, across all your pensions combined. Most people never come close to it, but high earners, business owners, and anyone making a large one-off contribution should check their position carefully. Exceeding the allowance triggers a tax charge that claws back relief on the excess, though carry forward may allow you to use unused allowance from the previous three tax years to avoid a charge on a larger one-off contribution.