UK Pension Annual Allowance 2026/27: Carry Forward, Tapering and the MPAA

What is the pension annual allowance?

The pension annual allowance is the maximum amount that can be paid into all UK registered pension schemes on your behalf in a single tax year, without incurring a tax charge. "On your behalf" means everything: your own contributions, your employer's contributions, salary sacrifice amounts (which are technically employer contributions) and any third-party contributions such as those from a family member. The allowance is measured against your total pension input amount (PIA) across all your schemes combined.

If your combined PIA exceeds the annual allowance (plus any carry-forward), the excess is added to your taxable income and charged at your marginal income tax rate — 20%, 40% or 45% depending on your total income. This is the annual allowance charge. It is not a penalty for wrongdoing; it is a mechanism that claws back the tax relief that was given on contributions above the limit.

The £60,000 standard allowance in detail

The £60,000 standard AA has been in place since 6 April 2023, when it was increased from £40,000 as part of the Spring Budget 2023. It applies to the 2023/24, 2024/25, 2025/26 and 2026/27 tax years unless Parliament changes it again. The allowance is gross — so a basic-rate taxpayer contributing £48,000 of their own money will have £60,000 added to their pension (£48,000 + £12,000 basic-rate relief added by the scheme), and that £60,000 gross is what counts against the allowance.

Employer contributions are not grossed up — if your employer puts in £15,000, that £15,000 counts directly. Similarly, salary sacrifice amounts (which are employer contributions in law) count at face value. There is no separate employer contribution allowance — everything goes into the same pot.

Worked example: Sarah — straightforward case

Carry forward: unlocking up to £180,000 of extra capacity

Carry forward is the rule that lets you add unused annual allowance from the three preceding tax years to the current year's AA. For 2026/27, the look-back years are 2023/24, 2024/25 and 2025/26 — each with a standard AA of £60,000. If you used none of those allowances, the theoretical maximum pension input for 2026/27 is £60,000 + £60,000 + £60,000 + £60,000 = £240,000.

Two critical eligibility conditions apply:

• You must have been a member of a UK-registered pension scheme in every one of the three prior years (active or deferred membership — you need not have contributed).
• Your personal contributions remain capped at your relevant UK earnings for the current year, though employer contributions are not capped by your earnings.

Carry-forward is used in a fixed order: current year's AA first, then the oldest available prior year, then the next oldest, then the most recent prior year. Unused AA from a year that is now more than three tax years ago is lost permanently.

The tapered annual allowance: who it affects and how it works

Since April 2016, very high earners have faced a tapered annual allowance that reduces the standard £60,000 AA. The current rules (which have applied since 2020/21) use two income tests:

• Threshold income test: if your income before pension contributions is £200,000 or below, the taper does not apply regardless of how much your employer puts in.
• Adjusted income test: if your adjusted income (net income plus all employer pension contributions) exceeds £260,000, the taper kicks in. For every £2 of adjusted income above £260,000, the AA reduces by £1, down to a floor of £10,000.

The two tests mean that large employer contributions can push an employee above the £260,000 adjusted income threshold even when their take-home salary is well below that figure. Salary sacrifice contributions count as employer contributions for the adjusted income calculation.

Worked example: Tom — tapered annual allowance

The Money Purchase Annual Allowance (MPAA)

The MPAA is triggered when you flexibly access a defined-contribution pension by taking taxable income from it. The most common triggers are drawing income from a flexi-access drawdown fund or taking an uncrystallised funds pension lump sum (UFPLS). Once triggered:

• Your DC pension inputs are permanently capped at £10,000 per tax year.
• You cannot use carry-forward to lift this £10,000 DC cap.
• You must notify your other pension schemes that you have triggered the MPAA within 91 days.
• If you also belong to a DB scheme, you may still contribute using carry-forward for DB purposes via the "alternative AA" (£50,000 minus the MPAA portion used), but most people in DC schemes are effectively locked at £10,000.

Actions that do not trigger the MPAA include: taking the 25% tax-free pension commencement lump sum (PCLS), buying a guaranteed annuity, taking small-pot lump sums under the small-pots rules (up to three pots of £10,000 each, or occupational scheme pots up to £10,000).

Worked example: Emma — MPAA applies

Defined benefit schemes: the 16× factor

For DB (final salary or career average) schemes, there are no cash contributions to count directly. Instead, HMRC requires a deemed pension input amount calculated as:

Pension Input Amount = (16 × increase in accrued annual pension) + increase in separate lump sum

For example, if your accrued DB pension increases from £20,000 to £22,000 in a year (a rise of £2,000) and there is no separate lump sum element, your pension input is 16 × £2,000 = £32,000. This counts against your annual allowance in exactly the same way as a DC contribution of £32,000 would. If your scheme uses a 3× lump sum factor and your lump sum rose by £6,000 alongside the pension rise, total input is £32,000 + £6,000 = £38,000.

The 16× factor is fixed in legislation (Finance Act 2004, s.234). It does not change if your scheme uses a different commutation factor for cash transfers. Your scheme administrator is required to give you a Pension Savings Statement by 6 October following the tax year if your pension input exceeded the annual allowance; you may also request one at any time.

NHS pension and the annual allowance

NHS consultants, GPs and senior clinical staff have been disproportionately affected by annual allowance issues since 2016. The NHS Pension Scheme is a defined-benefit scheme, so pension inputs are calculated using the 16× factor — and in years when a consultant's pensionable pay rises sharply (due to clinical excellence awards, merit awards or increased sessions), the deemed pension input can easily exceed £60,000 even before any carry-forward is considered.

The government introduced a 50:50 section option (contributing half the standard rate for half the benefit accrual) and a modified 2015 Remedy (McCloud) process, both of which affect carry-forward and pension input calculations in complex ways. NHS clinicians who receive a Pension Savings Statement showing an AA breach should seek specialist advice promptly, as both Scheme Pays elections and carry-forward calculations interact with the Remedy in ways that require careful handling. HMRC guidance is at the Pensions Tax Manual PTM057000 onwards.

The annual allowance charge: HMRC penalties and how to pay

If your pension inputs for the year exceed your available annual allowance (including any carry-forward), the excess is added to your income and taxed at your marginal rate through Self Assessment. There is no additional penalty on top of the charge itself — the charge is simply a recovery of the tax relief that was over-claimed. However, failure to declare the charge on your Self Assessment return will lead to HMRC penalties: automatic 5% surcharges, interest and potentially larger penalties for deliberate under-reporting.

You have two options to pay the charge:

• Pay personally: Include the charge on your Self Assessment return and pay it by 31 January following the tax year — or 31 July for a payment on account if applicable.
• Scheme Pays (mandatory): If the charge exceeds £2,000 and your total pension input exceeded the standard £60,000 AA (not just carry-forward), you can elect for your pension scheme to pay HMRC on your behalf. The scheme will deduct an actuarial equivalent amount from your pension pot or future benefits. The election must be made by 31 July in the year after the tax year concerned.

Employer contributions and salary sacrifice

Employer pension contributions — whether made directly or via a salary sacrifice arrangement — count toward the annual allowance in exactly the same way as personal contributions. Salary sacrifice is particularly effective because the reduction in your gross salary also reduces your National Insurance contributions (at 8% on earnings between £12,570 and £50,270, and 2% above that), and reduces your employer's NI liability too (13.8% on earnings above the secondary threshold).

For high earners close to the £200,000 threshold income test, salary sacrifice can be a powerful taper-avoidance tool: reducing your pre-pension income below £200,000 removes the taper entirely, even if your employer then pays in a large contribution. Specialist tax advice is recommended for this planning because the rules around threshold income and adjusted income interact in subtle ways with salary sacrifice schemes.

HMRC sources and further reading

Official HMRC guidance on the annual allowance is contained in the Pensions Tax Manual:

• PTM050000 — Annual allowance: overview and general rules
• PTM055000 — Carry-forward of unused annual allowance
• PTM056000 — Annual allowance charge
• PTM057000 — Tapered annual allowance
• PTM092000 — Money Purchase Annual Allowance

The GOV.UK page "Pension savings — tax charges" provides the public-facing summary, and HMRC's calculator tool (search "Annual allowance calculator HMRC") allows you to work through the taper and carry-forward arithmetic with your own numbers.