How Much Can I Pay Into a SIPP Each Year?

A Self-Invested Personal Pension (SIPP) is a type of personal retirement savings plan designed to provide individuals with extensive control over their investment choices. Understanding the rules governing contributions to such accounts is important for effective financial planning. These rules help individuals maximize their tax efficiency and avoid potential tax charges that can arise from exceeding contribution limits. While retirement savings systems vary by country, knowing the specific regulations of a SIPP helps in navigating its unique landscape for building retirement wealth.

The Standard Annual Allowance

For most individuals, the standard annual allowance sets the primary limit on contributions into a SIPP. For the 2025/2026 tax year, this allowance is £60,000. This figure represents the total gross contributions that can be made across all registered pension schemes an individual holds within a single tax year. The allowance encompasses both personal contributions, which include the benefit of tax relief, and any contributions made by an employer.

A fundamental principle governing pension contributions is the “net relevant earnings” rule. This rule generally dictates that an individual can contribute no more than their earned income in a tax year, up to the prevailing annual allowance. For instance, if an individual earns £40,000 in a year, their maximum total contribution to all pension schemes, including their SIPP, would be £40,000, even if the standard annual allowance is higher. This ensures that tax relief is applied to actual earned income.

There is a specific provision for individuals who do not have relevant earnings or earn below a certain threshold. Even non-earners can make a fixed gross contribution of up to £3,600 per tax year into a pension. This means that a personal payment of £2,880 benefits from basic rate tax relief, bringing the total contribution to £3,600.

To illustrate how contributions combine towards the allowance, consider an individual with £70,000 in relevant earnings. If their employer contributes £15,000 to a workplace pension, and they wish to contribute to a SIPP, their personal SIPP contributions (plus any tax relief) would be limited to £45,000 to remain within the £60,000 annual allowance. Exceeding this limit without utilizing carry forward provisions can result in a tax charge on the excess contributions.

Rules for Higher Earners and Those Accessing Funds

Beyond the standard annual allowance, specific rules apply to higher-income individuals and those who have begun accessing their pension benefits, potentially reducing the amount they can contribute.

The tapered annual allowance affects high-income individuals by progressively reducing their standard allowance. This tapering mechanism triggers if “threshold income” exceeds £200,000 and “adjusted income” surpasses £260,000 in a tax year. Threshold income includes all taxable income, while adjusted income adds employer pension contributions. For every £2 adjusted income exceeds £260,000, the allowance reduces by £1, down to a minimum of £10,000 for those with adjusted income of £360,000 or more. For example, an individual with adjusted income of £280,000 would see their £60,000 allowance reduced by £10,000, resulting in a tapered allowance of £50,000.

Another important restriction is the Money Purchase Annual Allowance (MPAA), which applies to individuals who have flexibly accessed their defined contribution pension benefits. For the 2025/2026 tax year, the MPAA is £10,000. This lower limit is designed to prevent individuals from withdrawing pension funds and then immediately re-contributing them to gain further tax relief. The MPAA is triggered by actions such as taking flexible drawdown payments or uncrystallised funds pension lump sums (UFPLS).

However, not all withdrawals trigger the MPAA. For instance, simply taking the tax-free lump sum portion of a pension pot, without accessing any further taxable income, does not activate the MPAA. Once triggered, the MPAA significantly restricts the amount an individual can contribute to defined contribution pension schemes, including SIPPs, in future tax years.

Maximizing Your Contributions Through Carry Forward

Individuals can sometimes contribute more than the current year’s annual allowance by utilizing a mechanism known as “carry forward.” This allows unused annual allowance from the three previous tax years to be brought forward and used in the current year. This provision offers flexibility, particularly for those who have fluctuating incomes or who wish to make a larger, one-off contribution.

To use carry forward, two main conditions must be met. First, the full annual allowance for the current tax year must be utilized before any carry forward can be applied. This means that the £60,000 standard allowance (or a lower tapered allowance if applicable) must be fully exhausted. Second, the individual must have been a member of a registered pension scheme, such as a SIPP or other personal or workplace pension, during the years from which they intend to carry forward the unused allowance. Membership does not require active contributions in those prior years, only that a pension existed.

A practical example helps illustrate how carry forward works. Suppose an individual had unused allowances of £10,000 in tax year 1, £15,000 in tax year 2, and £5,000 in tax year 3. In the current tax year, if their standard annual allowance is £60,000, they could potentially contribute their £60,000 allowance plus the £30,000 carried forward, totaling £90,000. The oldest unused allowance is used first.

While carry forward can significantly boost contribution capacity, it is subject to an overarching limitation. The total amount contributed in any given year, including any carried forward allowance, cannot exceed the individual’s net relevant earnings for that specific year. The only exception is for non-earners, who can still contribute under the specific rule for those without relevant earnings.

Understanding Tax Relief on Contributions

A significant benefit of contributing to a SIPP is the pension tax relief provided by the government, which effectively boosts the amount saved into the pension pot.

The fundamental concept of pension tax relief is that the government effectively tops up the contributions made to a SIPP. For most personal pensions and SIPPs, this is facilitated through a system known as “relief at source”. Under this method, the SIPP provider automatically claims basic rate tax relief (currently 20%) from the tax authority and adds it directly to the individual’s pension pot. This means that for every £80 personally contributed by the individual, the SIPP provider adds an additional £20, resulting in a gross contribution of £100 being invested in the SIPP.

For individuals who pay higher or additional rates of income tax, further tax relief can be claimed. While the basic rate relief is automatically added by the provider, higher rate (40%) and additional rate (45%) taxpayers are eligible to claim an extra 20% or 25% respectively. This additional relief is typically claimed through the individual’s self-assessment tax return or by contacting the tax authority directly.

Consider a higher rate taxpayer contributing £8,000 net into their SIPP. The SIPP provider would automatically add £2,000 (20% basic rate relief), making the gross contribution £10,000. This individual, being a 40% taxpayer, can then claim an additional £2,000 (the difference between 40% and the 20% already received) through their tax return, effectively reducing the net cost of their £10,000 gross contribution to £6,000. For an additional rate taxpayer, the effective cost would be even lower, as they could claim an extra 25% relief.