UK Pension Annual Allowance 2026/27: GBP 60,000 Limit, Tapering and the MPAA Explained
The pension Annual Allowance is GBP 60,000 for 2026/27, restored from the previous GBP 40,000 limit in April 2023. High earners may face a tapered allowance, and those who have accessed pensions flexibly face a GBP 10,000 Money Purchase Annual Allowance. This guide explains who is affected and how the limits work.
What Is the Pension Annual Allowance?
The Annual Allowance is the maximum total amount that can be contributed to all your pensions in a tax year while receiving tax relief. It covers your own contributions, your employer's contributions, and any contributions made on your behalf.
For 2026/27, the Annual Allowance is GBP 60,000. This was restored in April 2023 from the previous GBP 40,000 limit, primarily to encourage senior NHS clinicians to remain in the Defined Benefit pension scheme without facing large tax charges.
If contributions in a year exceed your applicable Annual Allowance, the excess is subject to an Annual Allowance charge at your marginal rate of Income Tax. This effectively cancels the tax relief on the excess.
How Defined Benefit Pensions Are Measured
For defined benefit (final salary) schemes, the Annual Allowance is not measured by the cash contributions paid in. Instead, HMRC uses the "pension input amount," calculated as: (new pension entitlement x 16) minus (opening entitlement x 16) plus any cash lump sum increase.
If your defined benefit pension accrues GBP 3,500 in a year, the pension input amount is GBP 56,000, which is just within the GBP 60,000 Annual Allowance. Many public sector workers with generous defined benefit schemes need to monitor this carefully.
The Tapered Annual Allowance
High earners face a reduced allowance under the tapering rules. The taper applies if both:
- Your threshold income exceeds GBP 200,000 (total income minus personal pension contributions, but before employer contributions)
- Your adjusted income exceeds GBP 260,000 (total income including employer contributions)
If both conditions are met, the Annual Allowance reduces by GBP 1 for every GBP 2 of adjusted income above GBP 260,000. The minimum Annual Allowance under tapering is GBP 10,000 (reached when adjusted income hits GBP 360,000).
The threshold income test prevents those with high salary but significant personal pension contributions from being caught inadvertently.
The Money Purchase Annual Allowance
The MPAA of GBP 10,000 applies from the moment you "flexibly access" a defined contribution pension. This includes:
- Taking any income from a flexi-access drawdown fund (even GBP 1)
- Cashing in a pension pot as an Uncrystallised Funds Pension Lump Sum (UFPLS)
- Annuity-like products with certain flexible features
Once triggered, the MPAA limits future contributions to all money purchase (defined contribution) schemes. You can still accrue defined benefits, but the relevant portion of the standard allowance (GBP 50,000) applies there.
The MPAA cannot be reset. It applies permanently once triggered, so it is important to consider the long-term consequences before accessing any defined contribution pension flexibly, particularly if you are still earning and making significant pension contributions.
Carry Forward: Topping Up with Prior Year Allowances
If you did not use your full Annual Allowance in the previous three tax years, you can carry the unused amount forward and add it to the current year's allowance. This allows a maximum combined contribution of up to GBP 180,000 (three years of GBP 60,000 brought forward plus the current GBP 60,000), subject to earnings being sufficient to support the contribution and tax relief.
You must first use the current year's allowance in full before drawing on carried-forward amounts, and the oldest year's unused allowance is used first.
Frequently asked questions
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