Can my employer pay pension contributions above the annual allowance?

Full answer

The pension annual allowance for 2026/27 is £60,000, and it covers the total of all contributions paid into your defined contribution pensions in the tax year -- both your own contributions and your employer's contributions combined. There is a common misconception that employer contributions are outside the annual allowance -- they are not. If your employer pays £50,000 into your pension and you contribute £15,000, the combined total of £65,000 exceeds the £60,000 annual allowance by £5,000. You, as the employee, are personally liable for the annual allowance charge on that £5,000 excess, taxed at your marginal Income Tax rate. The charge is declared and paid through your Self Assessment return. For high earners, the tapered annual allowance may reduce the £60,000 limit further (to a minimum of £10,000 when adjusted income reaches £360,000), making it even easier to exceed the limit with a combination of high salary and generous employer contributions. One important benefit of employer pension contributions is that they are free of employer and employee National Insurance. This makes pension contributions the most tax-efficient form of employer remuneration, since salary or bonus would attract NI at 13.8% (employer) and up to 8% (employee). Employer contributions are not a taxable benefit in kind for the employee. If you have previously flexibly accessed your pension (taken income drawdown), the Money Purchase Annual Allowance (MPAA) of £10,000 applies instead -- employer contributions count toward this tighter limit too. It is good practice for high earners and those receiving large employer contributions to calculate their annual allowance position each year and use carry forward of unused allowances from the previous 3 years if needed. Use a pension calculator to track your total contributions against your allowance.

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