Pension Annual Allowance Taper for High Earners 2026/27: How It Works
The pension annual allowance is normally £60,000 in 2026/27, but high earners see it tapered down. Once adjusted income passes £260,000, your allowance drops by £1 for every £2 over, to a floor of £10,000. Here is how the taper works and how to avoid an unexpected tax charge.
The Annual Allowance in 2026/27
The pension annual allowance is the maximum amount that can be paid into your pensions each tax year while still receiving tax relief. For most people in 2026/27 it is £60,000, or 100% of your relevant UK earnings if that is lower.
The allowance counts all contributions to your pensions: what you pay in personally, the tax relief added by HMRC, and anything your employer pays. For defined benefit schemes, it is the growth in your benefits over the year, not a cash figure.
For high earners, the picture changes. The tapered annual allowance reduces the £60,000 limit for those with large incomes, and getting it wrong can lead to a tax charge that wipes out the benefit of contributing.
How the Taper Works
The taper reduces your annual allowance by £1 for every £2 your adjusted income exceeds £260,000. The reduction stops at a floor of £10,000.
| Adjusted income | Tapered annual allowance |
|---|---|
| £260,000 or below | £60,000 (full) |
| £280,000 | £50,000 |
| £300,000 | £40,000 |
| £320,000 | £30,000 |
| £340,000 | £20,000 |
| £360,000 or above | £10,000 (floor) |
The arithmetic is straightforward once you know the two figures. At £300,000 adjusted income, you are £40,000 over the £260,000 threshold. Half of that is £20,000, so your allowance falls from £60,000 to £40,000. The maximum possible reduction is £50,000 (taking £60,000 down to the £10,000 floor), which is reached at £360,000 of adjusted income.
The Two Income Tests
The taper only applies if you fail both of two tests. This catches people out, because it is possible to have very high adjusted income and still keep the full allowance.
Test 1: Threshold income above £200,000
Threshold income is broadly your total taxable income for the year, less the gross amount of any personal pension contributions you made (and less certain other reliefs). Importantly, it does not add back employer contributions.
If your threshold income is £200,000 or less, the taper does not apply at all. You keep the full £60,000 allowance no matter how large your adjusted income is. This is a deliberate protection so that, for example, a one-off large employer contribution does not on its own trigger the taper.
Test 2: Adjusted income above £260,000
Adjusted income is broadly your total taxable income plus the value of all pension contributions, including employer contributions and the growth in any defined benefit scheme.
Only if both threshold income exceeds £200,000 and adjusted income exceeds £260,000 does the taper reduce your allowance.
A Worked Example
Priya earns a salary of £230,000. Her employer pays £25,000 into her pension, and she pays £10,000 personally (gross).
Threshold income: roughly £230,000 less her own £10,000 contribution = £220,000. This is above £200,000, so test 1 is failed.
Adjusted income: roughly £230,000 plus the £25,000 employer contribution plus her own £10,000 = £265,000. This is above £260,000, so test 2 is failed.
She is £5,000 over the adjusted income threshold. Half of that is £2,500, so her annual allowance is reduced from £60,000 to £57,500. Her total contributions for the year are £35,000 (£25,000 employer + £10,000 personal), which is comfortably under £57,500, so there is no charge. But if she planned a large additional contribution, she would need to watch the £57,500 ceiling.
Using Carry Forward Alongside the Taper
You can carry forward unused annual allowance from the three previous tax years, provided you were a member of a registered pension scheme during those years. Carry forward uses each year's actual allowance, including any taper that applied in those earlier years.
This is one of the most useful tools for high earners. Even with a tapered allowance of £10,000 this year, three prior years of unused allowance could let you contribute well over £60,000 in total. You must use the current year's allowance first, then the oldest available year, working forwards.
| Tax year | Allowance | Used | Unused carried forward |
|---|---|---|---|
| 2023/24 | £60,000 | £20,000 | £40,000 |
| 2024/25 | £60,000 | £30,000 | £30,000 |
| 2025/26 | £60,000 | £40,000 | £20,000 |
| 2026/27 (tapered) | £20,000 | available now | plus £90,000 carried forward |
In this illustration, a person with a tapered current allowance of £20,000 could contribute up to £110,000 this year (£20,000 current + £90,000 carried forward) before any charge, subject to having sufficient relevant earnings.
The Money Purchase Annual Allowance
There is a separate, lower limit if you have already flexibly accessed a defined contribution pension, for example by taking taxable income through drawdown. This is the money purchase annual allowance (MPAA), set at £10,000 in 2026/27.
Once the MPAA is triggered, you cannot use carry forward for money purchase contributions, and your defined contribution savings are capped at £10,000 a year. High earners who have started drawing income need to be especially careful here, because the MPAA and the taper interact and the lower of the relevant limits applies.
What Happens If You Exceed the Allowance
If your contributions exceed your available allowance (after carry forward), an annual allowance charge applies. This is designed to remove the tax relief you received on the excess. The charge is added to your taxable income and taxed at your marginal rate, which for high earners is typically 45%.
You report the charge through self assessment. If the charge is over £2,000 and you have exceeded the standard £60,000 allowance, you may be able to use Scheme Pays, where the pension scheme settles the charge from your pot rather than you paying it directly. This avoids a cash bill but permanently reduces your pension value.
Practical Steps for High Earners
- Work out your threshold income first. If it is £200,000 or below, you can stop worrying about the taper this year.
- If both tests are failed, calculate your exact tapered allowance using the £1 for every £2 rule.
- Check three years of pension statements for unused allowance you can carry forward.
- Watch out for the MPAA if you have already drawn pension income flexibly.
- Consider timing large employer contributions or bonuses across tax years to manage adjusted income.
- Keep records, because the annual allowance charge is reported on your own self assessment return and errors are common.
The taper is one of the more intricate corners of UK pension tax, and the figures move with each Budget, so confirm current thresholds on GOV.UK or with a regulated adviser before making large contributions.
Frequently asked questions
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