How does the tapered annual allowance for pensions work in 2026/27?

Full answer

The tapered annual allowance (TAA) reduces the pension annual allowance for very high earners. For 2026/27 the standard annual allowance is GBP60,000. Tapering applies only when two conditions are both met. Condition 1 -- threshold income: your income (earnings plus investment income, minus employee pension contributions but before employer contributions) exceeds GBP200,000. Condition 2 -- adjusted income: your income including employer pension contributions exceeds GBP260,000. If only one condition is met, tapering does not apply and the full GBP60,000 annual allowance stands. When both conditions are met, the annual allowance is reduced by GBP1 for every GBP2 of adjusted income above GBP260,000. The minimum tapered annual allowance is GBP10,000, reached when adjusted income is GBP360,000 or more. Tapering formula: tapered allowance = GBP60,000 minus ((adjusted income minus GBP260,000) divided by 2). Examples: adjusted income GBP280,000 -- excess GBP20,000 -- taper GBP10,000 -- allowance GBP50,000. Adjusted income GBP300,000 -- excess GBP40,000 -- taper GBP20,000 -- allowance GBP40,000. Adjusted income GBP360,000 or above -- minimum allowance GBP10,000. Carry-forward: you can still carry forward unused allowances from the previous 3 tax years, but the amount that was available in each prior year is based on the tapered allowance that applied in that year (not the standard GBP60,000). The tapered allowance interacts with the MPAA: if the MPAA has been triggered, the DC allowance is capped at GBP10,000 (the MPAA) regardless of the taper. Practical tip: salary sacrifice pension contributions reduce both your gross salary and employer NI, and can reduce adjusted income, potentially keeping you above or below the taper thresholds -- model the impact carefully with an adviser.

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