The pension annual allowance is the maximum amount you can save into registered pension schemes each tax year while still benefiting from tax relief. For 2026/27, the standard allowance is GBP 60,000 -- but high earners face a tapered reduction that can cut this as low as GBP 10,000. This guide explains how the taper works, how to use carry forward, when the money purchase annual allowance kicks in, and how defined benefit pensions are counted.
The standard pension annual allowance (AA) for 2026/27 is GBP 60,000. This figure has been in place since 6 April 2023, when it was raised from GBP 40,000 as part of the Spring Budget 2023 reforms. The annual allowance is not a contribution limit as such -- it is a cap on the total pension input amount (PIA) across all your registered pension arrangements in a given tax year, beyond which a tax charge applies at your marginal rate.
Pension input includes everything: your own personal contributions, contributions made by your employer (including salary sacrifice amounts, which are legally employer contributions), and -- for defined benefit schemes -- the actuarially calculated increase in your benefit entitlement. One common misconception is that the GBP 60,000 limit applies only to your own contributions. It does not. Generous employer contributions, a large DB accrual, or a combination of both can push you over the limit even if your personal contributions are modest.
A pension savings statement will be issued by your scheme administrator if your pension input in a defined benefit scheme exceeds GBP 44,000 in a tax year, or if you ask for one. For defined contribution (money purchase) schemes, you can calculate your PIA simply by adding up all contributions made in the tax year. You do not need to request a statement for DC schemes -- your provider will give you annual contribution figures in your statements.
Contributions beyond the annual allowance are not refused by the pension provider -- the provider accepts the money and provides tax relief in the normal way. However, you must then declare the excess on your Self Assessment return and pay an annual allowance charge, which effectively claws back the relief you should not have received. The charge is added to your taxable income for the year, so it is taxed at your marginal rate.
The tapered annual allowance (TAA) was introduced in April 2016 and modified significantly in April 2020 and again in April 2023. It applies to high earners and involves two separate income tests. You only face tapering if you fail both tests; passing either test means your full standard allowance of GBP 60,000 applies.
The first test is threshold income. Threshold income is broadly your total income from all sources -- employment, self-employment, property, savings, investments -- minus any personal pension contributions you make under relief at source (but NOT salary sacrifice contributions, which are employer contributions). If your threshold income is GBP 200,000 or below, the taper does not apply, regardless of your adjusted income. This means someone earning GBP 220,000 who makes GBP 25,000 of personal pension contributions (under relief at source) would have threshold income of GBP 195,000, falling below the GBP 200,000 threshold and escaping the taper entirely.
If your threshold income exceeds GBP 200,000, the second test applies. Adjusted income takes your threshold income and adds back employer pension contributions (including salary sacrifice). This gives a broader measure of your total economic income including the pension contributions made on your behalf. If adjusted income is GBP 260,000 or below, your allowance remains at GBP 60,000 even though you failed the threshold income test. The taper only begins to bite once adjusted income exceeds GBP 260,000.
A practical example: a senior hospital consultant earns GBP 180,000 in salary. Their employer NHS trust contributes GBP 40,000 to the NHS Pension Scheme on their behalf. Their threshold income is GBP 180,000 (below GBP 200,000), so they pass the first test -- no taper applies. Contrast this with a partner at a law firm earning GBP 240,000 whose firm contributes GBP 30,000 to their pension. Threshold income is GBP 240,000 (exceeds GBP 200,000), and adjusted income is GBP 270,000 (exceeds GBP 260,000). The taper applies, reducing their GBP 60,000 allowance by GBP 5,000 (GBP 10,000 excess divided by 2) to GBP 55,000.
Once adjusted income exceeds GBP 260,000, the taper reduces the annual allowance by GBP 1 for every GBP 2 of adjusted income above GBP 260,000. The reduction is applied to the standard GBP 60,000 allowance (or the tapered allowance if that is already reduced -- though in practice the two overlap). The minimum tapered annual allowance is GBP 10,000, which is reached when adjusted income hits GBP 360,000 (since GBP 100,000 excess divided by 2 = GBP 50,000 reduction from GBP 60,000 = GBP 10,000).
Calculating your tapered AA: first establish your adjusted income. Subtract GBP 260,000 to get the excess. Divide that excess by 2. Subtract the result from GBP 60,000. The answer is your tapered annual allowance for the year, subject to a minimum of GBP 10,000.
Example: adjusted income GBP 320,000. Excess above GBP 260,000 = GBP 60,000. Divided by 2 = GBP 30,000. Tapered AA = GBP 60,000 minus GBP 30,000 = GBP 30,000.
The minimum of GBP 10,000 was increased from GBP 4,000 in April 2023. This improvement means that even the most highly paid individuals retain at least GBP 10,000 of annual allowance -- preventing the situation (common before April 2023) where very high earners were effectively penalised for making even small pension contributions, since any contribution above GBP 4,000 could trigger a charge.
Carry forward allows you to use unused annual allowance from the three previous tax years. For 2026/27, you can draw on unused allowance from 2023/24, 2024/25, and 2025/26. Carry forward can dramatically increase the amount you can contribute in a single year -- for example, if you have made modest contributions in each of the past three years, you could potentially contribute well above GBP 60,000 without incurring a tax charge, as long as you have sufficient earnings (in the case of personal contributions) to support the contribution.
To use carry forward you must satisfy two conditions. First, you must have been a member of a registered pension scheme in the year from which you are carrying forward. You do not need to have been a member of the same scheme as the one you are contributing to now -- being a member of any registered UK pension scheme (including a workplace scheme you may have left) is sufficient. Second, you must use your full current year allowance before you can access carry forward. You cannot save carry forward by deliberately under-contributing in the current year.
For defined benefit scheme members, the pension input amount (the calculated increase in benefit entitlement) counts toward that year's usage of the allowance, even if no additional voluntary contributions were made. This means DB members in generous final salary schemes may have used more of their allowance than they realise in past years, leaving less unused allowance to carry forward.
Carry forward cannot be used to increase a money purchase pension input above the money purchase annual allowance (MPAA) of GBP 10,000 once that has been triggered. Carry forward only benefits individuals who have not triggered the MPAA. Additionally, for tapered annual allowance purposes, carry forward is based on the actual allowance in the earlier year -- so if your allowance was tapered in 2023/24, you carry forward the difference between that tapered figure and your actual contributions in that year, not the full GBP 60,000.
The money purchase annual allowance (MPAA) is GBP 10,000 for 2026/27. It applies specifically to defined contribution (money purchase) pension savings and is triggered when you flexibly access a defined contribution pension pot. Once triggered, you can contribute no more than GBP 10,000 to money purchase pensions in a tax year -- you cannot use carry forward to increase this above GBP 10,000.
Flexible access that triggers the MPAA includes: taking a flexi-access drawdown payment (even a very small one); taking an uncrystallised fund pension lump sum (UFPLS); entering an arrangement that provides a flexible annuity or a scheme pension where the scheme is insufficiently capitalised. Crucially, taking your 25% tax-free cash and using the remainder to buy a standard level annuity -- or leaving the rest in your pension -- does NOT trigger the MPAA. The trigger is about flexibility in how you draw income, not simply taking cash.
Once the MPAA is triggered, your pension provider must give you a flexible access statement within 31 days. You must then notify any other pension providers that you have triggered the MPAA within 91 days, as they need to monitor your money purchase contributions against the GBP 10,000 limit. Failure to notify providers can mean they inadvertently allow contributions that breach the MPAA, leading to an unexpected tax charge.
If you have triggered the MPAA, you can still contribute to a defined benefit scheme up to your remaining annual allowance (standard allowance minus GBP 10,000, so up to GBP 50,000 of DB accrual for most people). This matters for workers who have a DB scheme through their employer but also a separate DC pot they wish to draw from. Taking money from the DC pot will trigger the MPAA, but it does not restrict DB contributions.
Measuring a defined benefit (DB) or career average (CARE) pension against the annual allowance is less straightforward than for defined contribution schemes, because there are no actual money contributions to add up. Instead, HMRC uses a standard formula to calculate the pension input amount (PIA) for a DB arrangement.
The formula is: (closing annual pension x 16 + closing lump sum) minus (opening annual pension adjusted for CPI x 16 + opening lump sum adjusted for CPI). The factor of 16 reflects HMRC's standardised capitalisation rate for DB pensions. If your scheme provides a separate lump sum (commuted or defined lump sum) then this is included; if the only lump sum available is by commuting pension income, the lump sum component is zero in the formula.
For many senior public sector workers -- NHS consultants, headteachers, senior civil servants -- the annual DB accrual can be substantial. In a scheme with a 1/54th accrual rate (typical of the 2015 NHS Pension Scheme), a member earning GBP 120,000 would accrue approximately GBP 2,222 of annual pension entitlement in a year. Multiplied by 16, that equals a pension input amount of approximately GBP 35,556 -- well within the standard GBP 60,000 allowance, but leaving only GBP 24,444 for any other pension contributions that year.
Your scheme administrator should provide a pension savings statement if your PIA exceeds GBP 44,000 in a year, or you can request one at any time. It is important to request this proactively rather than waiting -- if you are making additional voluntary contributions (AVCs) alongside a generous DB accrual, you may be closer to the limit than you realise. Tax charges for exceeding the annual allowance can come as a nasty surprise on a Self Assessment return.
If you exceed the annual allowance, the excess pension saving is subject to the annual allowance charge. This charge is calculated by treating the excess as additional income for the year and taxing it at your marginal rate. For a higher rate taxpayer (income between GBP 50,271 and GBP 125,140 in 2026/27), the charge is 40% of the excess. For an additional rate taxpayer (income above GBP 125,140), the charge is 45%.
You declare the annual allowance charge on your Self Assessment tax return. The charge must be paid by 31 January following the tax year in which the excess arose. If the charge relates to a DB arrangement, paying it in cash can be painful -- you have accrued a pension benefit but may not yet have received any income from it. This is where the scheme pays mechanism is particularly important.
Mandatory scheme pays allows you to require your pension scheme to pay the annual allowance charge to HMRC directly on your behalf, in exchange for a reduction in your future pension benefits. This option is available where the annual allowance charge exceeds GBP 2,000 and the excess pension saving arose in that particular scheme. The scheme reduces your pension by an actuarially calculated amount to reflect the payment made. Voluntary scheme pays arrangements may be available from some schemes even where the mandatory conditions are not met -- check with your scheme administrator.
If you are likely to face a recurring annual allowance charge -- for example, because your DB accrual consistently exceeds your tapered allowance -- it is worth considering whether to reduce additional voluntary contributions, adjust salary sacrifice arrangements, or take independent financial advice on pension planning. The interactions between income, threshold income, adjusted income, and carry forward make this one of the most complex areas of UK tax planning.