How Much Can I Contribute to My Pension?

Contributing to a pension is an aspect of planning for retirement, supported by government tax relief to encourage saving. This relief means some money that would have gone to the government as tax is added to your pension instead. The government imposes limits on the amount that can be contributed to pensions each year while benefiting from this tax advantage. Understanding these limits is part of managing your long-term financial health and making the most of available retirement savings incentives.

Understanding the Pension Annual Allowance

The primary limit on pension contributions is the Annual Allowance, which for the 2025/2026 tax year is £60,000. This figure represents the total gross amount that can be saved across all of an individual’s pension schemes in a single tax year, running from April 6th to April 5th. The allowance covers contributions from all sources, including personal, employer, and third-party payments.

Personal contributions are also capped at 100% of your relevant UK earnings for the tax year. Relevant UK earnings include salary, bonuses, and self-employment profits, but not income from dividends or property rentals. For example, an individual earning £50,000 a year can have a total of £50,000 contributed to their pensions from both their own and their employer’s payments. Their personal contributions are limited by their £50,000 salary, even though the standard Annual Allowance is higher.

Individuals with no relevant UK earnings, or those earning less than a certain threshold, can contribute up to £3,600 gross into a pension each tax year. This provision allows savings for non-working partners or children.

Adjustments for High Earners and Pension Drawdown

The £60,000 Annual Allowance can be reduced for high-income individuals or those who have started accessing their pension. These adjustments are the Tapered Annual Allowance and the Money Purchase Annual Allowance (MPAA), which override the standard limit.

Tapered Annual Allowance

The Tapered Annual Allowance is triggered if both “threshold income” exceeds £200,000 and “adjusted income” exceeds £260,000 for the 2025/2026 tax year. Threshold income is your total taxable income after deducting personal pension contributions. Adjusted income is your total taxable income plus all employer pension contributions.

Once both limits are breached, the £60,000 Annual Allowance is reduced by £1 for every £2 that your adjusted income exceeds £260,000. This reduction continues until the allowance reaches a minimum of £10,000, which applies to anyone with an adjusted income of £360,000 or more. For example, someone with an adjusted income of £280,000 would have their allowance reduced by £10,000, resulting in a Tapered Annual Allowance of £50,000.

Money Purchase Annual Allowance (MPAA)

The Money Purchase Annual Allowance (MPAA) is a permanent reduction triggered when an individual first “flexibly accesses” a defined contribution pension. Triggering events include taking an Uncrystallised Funds Pension Lump Sum (UFPLS) or drawing income from a flexi-access drawdown fund. Taking only a tax-free cash lump sum while moving the rest into an untouched drawdown fund does not trigger the MPAA.

Once triggered, the MPAA is £10,000 for the 2025/2026 tax year and replaces the standard Annual Allowance for future contributions to defined contribution schemes. Triggering the MPAA also means you lose the ability to carry forward any unused allowance from previous years. This is a major consideration for those who plan to work and save after accessing their pension.

Carrying Forward Unused Pension Allowance

The “carry forward” rule allows individuals to use any unused Annual Allowance from the three previous tax years to exceed the current year’s limit. To be eligible, you must have been a member of a registered pension scheme during the years you are carrying forward from.

You must first use the full Annual Allowance for the current tax year. Then, you can use the allowance from the earliest of the three preceding tax years, followed by the next. For the 2025/2026 tax year, you could carry forward unused allowance from 2022/2023, 2023/2024, and 2024/2025.

For instance, someone wanting to contribute £70,000 in 2025/2026 would first use their £60,000 allowance for the current year. They could then use £10,000 of unused allowance from a previous year, starting with 2022/2023, to cover the excess without an immediate tax charge.

The Annual Allowance Charge for Excess Contributions

If your total pension contributions exceed your available Annual Allowance, including any carried forward, the excess is subject to the Annual Allowance Charge. This charge reclaims the tax relief granted on the excess contribution and is not considered a penalty. The charge is not a fixed rate; the excess amount is added to your taxable income for the year and taxed at your marginal rate of income tax.

For example, an excess contribution of £10,000 that falls into the higher-rate tax band will be taxed at 40%. There are two ways to pay this charge. The first is to pay it directly to HM Revenue & Customs (HMRC) via a Self Assessment tax return. The excess contribution must be reported, and the charge will be added to your tax bill.

Alternatively, you can ask your pension scheme to pay the charge from your pension savings, known as “Scheme Pays.” This is possible if the charge is over £2,000 and your contributions to that single scheme exceeded £60,000. You must still declare the charge on your tax return even if the scheme pays it.