Exceeded Your Pension Annual Allowance? The Charge Explained (2026/27)

What is the Annual Allowance and why does it matter?

The Annual Allowance (AA) is the maximum total amount that can be contributed to your pension schemes in a tax year while still receiving tax relief. It exists because pension contributions benefit from income tax relief — the government caps the relief available to prevent unlimited tax-advantaged saving.

For 2026/27 the standard Annual Allowance is £60,000, or 100% of your UK earnings if lower. The 100% of earnings cap means that if you earn £30,000, you cannot contribute more than £30,000 in total across all your pensions, even though the standard limit is higher.

What counts towards the Annual Allowance?

• Your personal contributions (including any you make to a SIPP)
• Your employer's contributions to workplace pensions
• For defined benefit (DB) schemes: the pension input amount, calculated as 16× the annual pension increase plus any lump sum increase (less the CPI revaluation cap)

The AA is not about what you personally contribute — it aggregates everything. Senior employees with generous employer pension schemes can easily exceed the limit without making any personal contributions at all.

What happens if you exceed the Annual Allowance?

Exceeding the Annual Allowance does not trigger an automatic penalty. Instead, you lose tax relief on the excess and pay an Annual Allowance Charge which effectively claws back the benefit.

The charge is calculated as follows:

1. HMRC adds the excess to your taxable income for the year.
2. The charge equals the additional income tax on that excess, at your marginal rate.
3. It is not a separate flat rate — it mirrors exactly how much tax relief you received that you should not have.

Annual Allowance Charge rates by marginal rate:

If the excess pushes you across a tax band boundary, part will be charged at each rate. The charge is reported on your Self Assessment tax return.

The Tapered Annual Allowance: who it applies to

For high earners, the standard £60,000 AA is reduced via the Tapered Annual Allowance. The taper applies if:

• Your adjusted income exceeds £260,000 (this is your total income plus employer pension contributions), AND
• Your threshold income exceeds £200,000 (income before pension contributions)

If both tests are met, your AA is reduced by £1 for every £2 that adjusted income exceeds £260,000. The minimum tapered AA is £10,000 (reached when adjusted income hits £360,000).

Tapered AA example:

Senior NHS consultants, city lawyers, and corporate executives are the most common groups affected by the taper. It is why many high-earning NHS doctors have faced significant AA charges.

Carry forward: the most powerful tool to avoid the charge

Carry forward allows you to use unused Annual Allowance from the three previous tax years. If you did not use your full allowance in 2023/24, 2024/25, or 2025/26, that unused portion can be added to your current year's limit.

Rules:

1. You must use the current year's full £60,000 allowance first.
2. Then apply carry forward from the oldest year first (2023/24 before 2024/25, etc.).
3. You must have been a member of a registered pension scheme in each year you carry from (not necessarily contributing — just a member).
4. You cannot carry forward from a year in which the tapered AA applied (you use whatever your tapered limit was that year).

Previous Annual Allowance limits for carry forward:

So the maximum carry forward available in 2026/27 is potentially £60,000 × 3 = £180,000 (plus the current year's £60,000), giving a theoretical maximum of £240,000 — assuming zero contributions in each prior year.

Worked example: Helen avoids the charge with carry forward

Helen earns £55,000 per year and works for a large employer. In 2026/27, her employer makes a substantial one-off pension contribution:

• Helen's personal contributions: £5,000
• Employer contributions: £65,000 (large one-off contribution)
• Total pension input: £70,000
• Annual Allowance: £60,000
• Excess: £10,000

Without carry forward, Helen would face a charge of £10,000 × 40% = £4,000 (she is a higher-rate taxpayer on £55,000).

Carry forward check — Helen's unused allowance:

Helen has far more carry forward available (£152,000) than her £10,000 excess. She uses £10,000 from 2023/24 (oldest year first). Her effective AA for 2026/27 becomes £70,000.

Result: Annual Allowance Charge = £0. Helen still needs to report the position on her Self Assessment return, but the charge is eliminated.

Scheme Pays: when your pension pays the charge for you

If you have a large AA charge and insufficient cash to pay it, Scheme Pays allows your pension provider to pay the charge to HMRC and reduce your pension pot accordingly.

Mandatory Scheme Pays (you have the right to demand it):

• The AA charge is at least £2,000, AND
• Your excess in a single scheme is at least £2,500

Voluntary Scheme Pays: Some providers offer this even when the mandatory conditions are not met — check with your scheme.

How it works:

1. You instruct your pension scheme to pay the charge using Form APSS263.
2. The scheme pays HMRC directly from your pension pot.
3. Your pension is reduced by more than the charge amount — the scheme applies an actuarial reduction to account for the lost future investment growth.
4. Deadline: You must notify your scheme by 31 July in the year after the tax year in question. For 2026/27, that is 31 July 2028.

Important: Choosing Scheme Pays means your eventual pension will be lower. For defined benefit pensions, the actuarial reduction is calculated by the scheme actuary. For defined contribution pensions, the pot is simply reduced by the charge amount.

How to report an Annual Allowance charge: Self Assessment

The AA charge is reported on your Self Assessment tax return, specifically on the SA100 or the Pension savings tax charges supplementary pages (SA101). Key boxes:

• Total pension savings in each scheme for the year (your pension provider should supply this on an annual pension savings statement)
• Carry forward available and used
• Whether Scheme Pays is being used

Pension savings statements: If your pension input amount exceeds the standard AA, your pension provider is legally required to send you a pension savings statement by 6 October after the tax year end. If you think you may have exceeded the AA and have not received one, contact your scheme.

Self Assessment deadlines:

• File online: 31 January 2028 (for 2026/27)
• File paper: 31 October 2027

If you are not already registered for Self Assessment, register via gov.uk — pension charges are one of the qualifying reasons.

Common scenarios that create an AA charge

Large employer contributions: A redundancy payment routed through a pension, a year-end bonus paid as pension, or an unusually large employer contribution can push the total over £60,000 without the employee expecting it.

Defined benefit accrual in good years: For senior public sector workers (NHS, teachers, civil servants), a promotion or significant salary increase can cause large notional pension input amounts because the AA is calculated on the accrual value (16× the pension increase), not cash contributions.

SIPP contributions plus workplace pension: Someone contributing to both a SIPP and receiving employer contributions may miscalculate the combined total.

Death-in-service lump sum to pension: In some schemes, employer contributions associated with death-in-service benefits count towards the AA.

Sources

• HMRC: Pension savings — tax charges
• HMRC: Check if you have unused annual allowances
• HMRC: Scheme Pays — pension annual allowance charge
• HMRC: Tapered Annual Allowance
• Money Helper: Pension annual allowance