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The pension annual allowance, explained (UK)
How much you can pay into pensions each tax year, when the allowance shrinks, and the carry-back rule that saves three years of unused room.
This is a UK rule page. The pension annual allowance is the cap on how much can be paid into your pensions each tax year while keeping the tax relief — and for high earners it is not the headline number but a smaller, tapered one. The machinery is worth knowing before the March rush.
The cap, and what counts against it
The annual allowance covers all pension contributions in a tax year from every source: yours (net of tax relief), your employer's, and any third party's. The current standard allowance is set by HMRC and published on the GOV.UK pension rates page — check that page for the live figure rather than a blog's copy. Two things surprise people: employer contributions count fully against your allowance, and defined-benefit pension growth counts too (an employer final-salary scheme can use allowance without a penny moving).
The taper for higher earners
If both your threshold income and your adjusted income exceed the published thresholds, the annual allowance tapers down by £1 for every £2 of adjusted income above the line, to a published floor. The two income definitions differ in specific ways (adjusted income adds employer pension contributions; threshold income does not), which is why people near the thresholds get surprised. The rates page carries the current thresholds and floor. If you are anywhere near the boundary, the numbers run through a spreadsheet before the contribution decision — not after.
When you overshoot: the charge
Contributions above the annual allowance do not vanish and are not simply refunded: the excess is taxed through the annual allowance charge, which claws back the relief at your marginal rate. The process is the self-assessment return — which is why the tax-year calendar matters, see the Self Assessment deadlines. Some schemes offer “flexible” charge arrangements where the charge is paid from the pension itself; the trade-offs are scheme-specific and worth a call to the provider.
Carry-back: the three-year reservoir
Unused allowance from the previous three tax years can be carried forward and used in the current year — provided you were a member of a registered pension scheme in those years. The rules of the road: use the current year's allowance first, then the oldest carried-forward year, and keep records (scheme annual statements) of the running total. Carry-back is exactly what makes a windfall year manageable — see what to do with a windfall — and it turns three modest years of headroom into one meaningful contribution window. The allowance is a use-it-or-reservoir-it rule; the reservoir is the whole point.
Money purchase annual allowance
A separate, lower annual limit can apply after someone has flexibly accessed defined-contribution pension savings. This is the money purchase annual allowance, and it can restrict future tax-relieved contributions even when the standard allowance would otherwise be larger. Taking a tax-free lump sum alone does not always trigger it; the exact access route matters. Check the current HMRC guidance and the scheme’s paperwork before drawing benefits if you expect to keep contributing. The trigger and the applicable figure can change, so do not rely on an old allowance table.
Keep a contribution record
For defined-contribution plans, collect annual statements from every workplace and personal scheme, including employer payments and salary sacrifice. For defined-benefit schemes, the pension input amount is based on the change in promised benefits under the statutory calculation, not simply the cash paid by you. If the total approaches the allowance, ask the administrators for the figures before the tax year closes. Carry-forward has ordering and eligibility rules, and using it correctly depends on accurate records of prior membership and unused allowance—not just the amount visible in a current account.
Sources and further reading
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