Is your pension allowance working hard enough?

With a mortgage, bills and everyday spending all competing for your income, retirement saving can feel like something for later. But the sooner money goes in, the longer it has to grow, and pension contributions come with valuable tax advantages. Knowing the limits helps you make the most of them without triggering a tax charge. Remember that pensions are usually invested, so their value can fall as well as rise.

The key limits for 2026/27

Annual allowance

£60,000

Total that can normally go into your pensions each tax year, including your own, employer and salary sacrifice contributions

Tax relief on personal contributions

100% of relevant UK earnings, or £3,600 gross if higher

People with little or no earnings can still get some relief

Tapered annual allowance

Applies above £200,000 threshold income and £260,000 adjusted income

Allowance falls £1 for every £2 over £260,000, to a minimum of £10,000

Money purchase annual allowance (MPAA)

£10,000

Can apply once you flexibly take taxable money from a defined contribution pension

When your allowance could be lower

High earners. If your income is above both taper thresholds, your annual allowance shrinks. At the top end it can drop as low as £10,000.

Already drawing your pension. Taking taxable income flexibly from a defined contribution pension can trigger the MPAA. That limits future tax-relieved contributions to £10,000 a year, and you cannot use carry forward to increase it.

Using unused allowance from earlier years

If you haven't used your full allowance in the previous three tax years, you may be able to carry forward the unused amount and make a larger contribution now. To do so:

• your earnings this year must be high enough to support the total contribution, including the carried-forward amount. For personal pension contributions, tax relief is generally limited to your relevant UK earnings for the current tax year (or £3,600 gross if higher). Employer contributions are not subject to the same earnings restriction, although annual allowance rules still apply
• you must have been a member of a registered pension scheme in those earlier years, even if nothing was paid in
• other restrictions, such as the taper, may still apply

Carry forward can be especially useful after a bonus or pay rise, or when you want to give your savings a final push before retirement. Before a large payment, check your pension statements, employer contributions and past usage so you know exactly how much headroom you have.

Keep your contributions under review

Going over your annual allowance can lead to an unexpected tax bill. That's a particular risk if your earnings vary or you hold several pensions. The rules are complex, so understanding how they apply to you helps avoid costly surprises and get more from your retirement savings.

Important information

This article does not constitute tax, legal or financial advice and should not be relied upon as such. For guidance, seek professional advice. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028, unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, and you may get back less than you invest. Tax treatment depends on individual circumstances and may change in the future.