Pension Annual Allowance 2026/27: £60,000 Limit, What Counts and How to Avoid a Charge

The standard annual allowance for 2026/27

The annual allowance (AA) for 2026/27 is £60,000. This is the maximum you can contribute to all registered pension schemes in a tax year while still receiving tax relief. The allowance was increased from £40,000 to £60,000 in April 2023 as part of the Spring Budget 2023 changes, which also abolished the lifetime allowance. The AA applies to the combined total of all contributions across all your pension schemes, including workplace pensions, SIPPs and any other registered pension.

There is a secondary limit: contributions in any year are also capped at 100% of your relevant UK earnings (salary, self-employment income, etc.). If you earn £30,000, you can contribute up to £30,000 in that year even though the nominal AA is £60,000. You cannot contribute more than your earnings even if unused carry-forward allowance is available, except through employer contributions which are not subject to the earnings cap.

What counts towards the annual allowance

For defined contribution (DC) schemes, which includes most workplace pensions, SIPPs and personal pensions, the total pension input is all contributions made in the pension input period (the tax year), regardless of who paid them. Employee contributions, employer contributions and contributions from any third party all count. For a salary sacrifice arrangement, the employer contribution replacing the sacrificed salary counts as a pension input.

For defined benefit (DB) schemes, final salary or career average schemes, the calculation is more complex. HMRC uses a formula: the pension input is 16 × (closing pension accrual − opening pension accrual), adjusted for inflation, plus any pension commencement lump sum increase. DB pension accrual can be surprisingly high for senior public sector workers or those in private DB schemes, and it is worth calculating this before making additional contributions to a DC scheme in the same year.

The money purchase annual allowance (MPAA)

Once you flexibly access a defined contribution pension, by taking an income via flexi-access drawdown, taking an uncrystallised funds pension lump sum, or annuitising part of the fund, you trigger the Money Purchase Annual Allowance of £10,000. This replaces the standard £60,000 AA for future DC contributions and cannot be increased by carry forward. The MPAA does not apply to DB accrual.

Taking a tax-free cash lump sum from a pension without entering drawdown does not trigger the MPAA. Small pots of under £10,000 can also be taken as a lump sum without triggering it. If you have already flexibly accessed a DC pension, take care before making significant new DC contributions, the £10,000 MPAA limit is much harder to manage.

The annual allowance charge

If your total pension inputs exceed the annual allowance in a tax year, the excess is added to your income for tax purposes and charged at your marginal rate. The charge is reported and paid through Self Assessment. You can ask your pension scheme to pay the charge directly from your pension pot rather than from your take-home pay, this is known as mandatory scheme pays (where the excess is over £2,000 and total contributions exceed £60,000) or voluntary scheme pays. Your pension pot is reduced accordingly.

For those close to the limit, the annual allowance checker tool can help you assess whether your inputs for 2026/27 are on track to trigger a charge. If they are, you may be able to use carry forward from earlier years to absorb the excess legitimately.