Pension Annual Allowance 2026/27, £60,000 Limit Explained

What the Annual Allowance Is

The pension annual allowance for 2026/27 is £60,000. This is the maximum total pension input, across all your registered pension schemes combined, in a single tax year for which you can receive tax relief. The allowance was increased from £40,000 to £60,000 in April 2023 and has remained at £60,000 since. It covers employee contributions, employer contributions and DB accrual all added together.

There is a secondary constraint: you cannot contribute more than 100% of your relevant UK earnings (salary, trading income) in the year, even if your unused allowance would otherwise permit it. If you earn £35,000, the effective cap is £35,000, not £60,000. This earnings cap applies to personal contributions only; employer contributions are not limited by the earnings cap, though they still count towards the £60,000 overall limit. If you exceed the annual allowance, the excess is added to your taxable income for the year, generating an annual allowance charge at your marginal rate. You can ask your scheme to pay the charge directly from your pension pot if the excess exceeds £2,000, this is called 'scheme pays'.

Money Purchase Annual Allowance (MPAA)

Once you flexibly access a defined contribution (money purchase) pension, the MPAA replaces the standard £60,000 allowance for future DC contributions. The MPAA is £10,000, dramatically lower. Flexible access means taking income via flexi-access drawdown, receiving an uncrystallised funds pension lump sum (UFPLS), or purchasing a flexible annuity that includes an income guarantee with a cashback option.

Taking a tax-free lump sum (pension commencement lump sum) without entering drawdown does not trigger the MPAA. Nor does taking a small pot under £10,000, or commencing a lifetime annuity with no income flexibility. Once triggered, the MPAA cannot be reversed, it applies for the rest of your life. This makes the timing of accessing a pension pot critically important for anyone still working and wishing to continue making large pension contributions. The MPAA does not affect defined benefit accrual, only DC contributions.

Tapering for High Earners

For high earners, the standard £60,000 allowance is tapered downwards. The taper applies when two conditions are both met: threshold income exceeds £200,000 AND adjusted income exceeds £260,000. Threshold income is broadly your taxable income excluding employer pension contributions. Adjusted income is threshold income plus employer pension contributions.

Where both conditions are met, the allowance reduces by £1 for every £2 of adjusted income above £260,000. The minimum tapered allowance is £10,000, reached at adjusted income of £360,000. An individual with adjusted income of £280,000 faces a reduced allowance of £60,000 − (£280,000 − £260,000) / 2 = £60,000 − £10,000 = £50,000. Carry forward from earlier years can be used against the tapered allowance, but it is particularly complex to calculate, professional advice is worthwhile for anyone near the taper thresholds.

How Employer Contributions Interact

Employer pension contributions count fully towards the annual allowance. If your employer contributes £15,000 and you contribute £10,000 in the same year, your total pension input is £25,000, well within the £60,000 limit. But if your employer makes a very large contribution, for example a one-off employer contribution to a SIPP of £50,000, and you also contribute £15,000 personally, the total is £65,000, exceeding the allowance by £5,000 and triggering a charge.

For salary sacrifice arrangements, the sacrifice converts employee contributions into employer contributions, the employer makes the pension payment instead of the employee. This has no adverse effect on the annual allowance calculation: salary sacrifice employer contributions count the same as any other employer contribution. What salary sacrifice does do is reduce the employee's pensionable pay, which can affect certain defined benefit scheme calculations, an important point to check with your scheme if you participate in a DB arrangement.