Tony Thomas | BA (Hons), FPFS, ACII | Chartered Financial Planner | Fellow of the Personal Finance Society
Last compliance review 3rd Sept 2026
Correct as at 2026/27. Pension allowances change most tax years, so it’s worth checking you’re working from current figures rather than an old article, or a number someone mentioned in passing.
If you’re paying into a pension, or thinking about it, it helps to know how much you can add each year without triggering a tax charge. This guide covers the allowances that matter most: what they are, what they’re currently set at, and where the rules have changed more significantly than most people realise.
The Pension Annual Allowance
The Annual Allowance is the maximum amount an individual can add to their pension pots, each tax year, without incurring tax charges. It applies to UK registered pension schemes, including defined benefit (final salary) schemes and defined contribution (money purchase) schemes.
For 2026/27, the standard Annual Allowance is £60,000, the level it moved to from the 2023 Spring Budget and has remained at since.
What counts towards the Annual Allowance?
The Annual Allowance includes all pension payments made by an individual, including personal and employer contributions, and any others made by a third party on their behalf.
For defined benefit schemes, the Annual Allowance is based on the increase in the value of the pension benefits accrued during the tax year. The increase in value is calculated using a factor of 16, and any amount above the Annual Allowance will be subject to a tax charge.
For defined contribution pension schemes, the Annual Allowance is based on the total amount of contributions made during the tax year. This includes both employee and employer contributions. For tax relief purposes, personal contributions are deemed to have been paid net of basic rate tax, which means the pension scheme will claim basic rate tax relief from HM Revenue and Customs (HMRC) on the individual’s behalf.
It’s important to note that the Annual Allowance includes all contributions, regardless of whether they are made to a workplace pension scheme, a personal pension plan, or a self-invested personal pension (SIPP). If you’re contributing to multiple pension schemes, you need to ensure the total amount does not exceed the Annual Allowance, to avoid incurring tax charges.
Annual Allowance carry forward
It is possible to carry forward any unused Annual Allowance from the previous three tax years, currently 2023/24, 2024/25 and 2025/26, provided you were a member of a registered pension scheme during those years and did not use up your full Annual Allowance.
This means that if you didn’t make any contributions to your pensions in a previous tax year, or only used a portion of your Annual Allowance, you may be able to use the unused allowance in the current tax year, in addition to the standard Annual Allowance for that year.
However, to use the carry forward allowance, you must have used up your full Annual Allowance for the current tax year first. The carry forward allowance can only be used to the extent that you have sufficient earnings and tax-relievable contributions to support it.
Any unused allowance from the earliest of the three previous tax years must be used first, before the allowance from the more recent tax years can be used. The rules around carry forward can be complex, so it’s always advisable to seek professional financial advice if you’re considering using this option.
If you’re thinking about pausing or stopping contributions for a while on the basis you can build them back up again later, it’s worth reading this article first: Can I Pause or Cancel My Pension Contributions?
The Money Purchase Annual Allowance (MPAA)
The Money Purchase Annual Allowance (MPAA) is a limit on the amount you can contribute to a defined contribution pension scheme, such as a personal pension or a self-invested personal pension (SIPP), after you have accessed your pension benefits flexibly.
Flexibly accessing your benefits means taking income or lump sum payments from your pension savings, either through income drawdown or by purchasing certain types of annuity. Once you’ve done this, the MPAA limit applies, and it restricts the amount of tax relief you can receive on further contributions to your defined contribution pension.
For 2026/27, the MPAA is £10,000. It exists to stop pension savings being recycled for additional tax relief once you’ve already started drawing an income. Carry forward cannot be used to get around the MPAA.
The Tapered Annual Allowance
The Tapered Annual Allowance is a mechanism used by HM Revenue and Customs (HMRC) to reduce the amount of tax relief available on pension contributions for high earners. It applies to individuals who earn above a certain threshold.
For 2026/27, the threshold income is £200,000, and the adjusted income is £260,000.
Threshold income is broadly your income from all sources, including employment, self-employment and investments, but before any pension contributions are made. Adjusted income includes all sources of income, including pension contributions, and also takes into account any employer pension contributions.
If your adjusted income exceeds £260,000 and your threshold income is above £200,000, your Annual Allowance for pension contributions will be reduced by £1 for every £2 of adjusted income above the £260,000 threshold, down to a minimum of £10,000, which is reached once adjusted income hits £360,000.
This is a complex area, particularly where bonuses or employer contributions push someone over the threshold unexpectedly. Much of this may already be reflected in your existing plan if we’ve reviewed your income position with you, but it’s always worth checking if your circumstances have changed.
The Pension Advice Allowance
The Pension Advice Allowance is a government initiative, introduced in 2017, that allows you to withdraw up to £500 from your pension pot, tax-free, to pay for regulated financial advice on a range of retirement planning issues, including pensions, annuities and drawdown.
It can only be used once in any tax year, up to a maximum of three times in total.
To be eligible, you must be aged 55 or over and hold a defined contribution pension scheme. You’ll also need to check that your pension scheme allows for withdrawals under the Pension Advice Allowance.
The advice allowance cannot be used to pay for advice on other financial matters, such as general investments or debt management. If the cost of the advice is more than the allowance, you’ll need to pay the difference yourself.
No changes have been made to this allowance since it was introduced, and it remains available at the same £500 limit for 2026/27.
What happened to the Lifetime Allowance (LTA)?
If you’re still searching for information on the Lifetime Allowance (LTA), here’s the short answer: it no longer exists. The LTA, the cap on how much you could build up across all your pensions without an additional tax charge, was abolished outright from 6 April 2024. There is no longer an overall limit on how much your pension pot can grow to.
What replaced it are two separate limits on tax-free lump sums:
- The Lump Sum Allowance (LSA): £268,275, the most you can normally take tax-free as a Pension Commencement Lump Sum or similar tax-free lump sum across all your pensions.
- The Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100, a wider cap covering tax-free lump sums paid during your lifetime and on death.
What this means for your planning
None of this changes overnight for most people, the £60,000 Annual Allowance has been stable for several tax years now. Where it matters most is for anyone who has already accessed pension benefits flexibly (MPAA), anyone with income moving above £200,000 (tapering), and anyone with older LTA protections who’s unsure how the 2024 changes affected their position.
These changes largely favour people who want to keep working, saving, or returning to work later in life, particularly those approaching or already at retirement age who want more flexibility over how and when they draw their pension.
If any of this raises a question about your own situation, that’s exactly what a review conversation is for.
Book an appointment (using the button below, or email to tony@ttwealth.co.uk) to find out and ensure you’re able to make informed decisions about your pension savings and retirement goals.
Frequently Asked Questions
Is the Lifetime Allowance still a thing?
No. It was abolished from 6 April 2024. Tax-free lump sums are now governed by the Lump Sum Allowance (£268,275) and the Lump Sum and Death Benefit Allowance (£1,073,100) instead.
Has the Annual Allowance changed for 2026/27?
No. It has remained at £60,000 since the 2023 Spring Budget increase, and there’s been no further change for 2026/27.
How much can I pay into my pension each year?
Most people can pay up to £60,000 a year across all their pensions and receive tax relief, or 100% of earnings if lower. This drops to £10,000 if you’ve flexibly accessed a defined contribution pension (MPAA), or if you’re a high earner affected by the tapered allowance.
What triggers the Money Purchase Annual Allowance?
Flexibly accessing a defined contribution pension, for example through income drawdown or cashing in a small pot. Once triggered, further contributions to that pension are limited to £10,000 a year.
Do I need to worry about the tapered annual allowance?
Only if your threshold income is above £200,000 and your adjusted income is above £260,000. If you’re unsure how bonuses or employer contributions affect this, it’s worth checking with a financial planner rather than assuming.
Can I carry forward unused pension allowance?
Yes, from the previous three tax years, currently 2023/24, 2024/25 and 2025/26, provided you were a member of a registered pension scheme in each of those years and have sufficient earnings to support the contribution.
About The Author
Tony Thomas is a Chartered Financial Planner and founder of TT Wealth, based in South Wales. His Retirement Clarity Framework helps people approaching or in retirement bring pensions, investments and estate plans together into one clear, tax-efficient strategy.
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