Pension Allowances 2026/27: Annual Allowance, Tax Relief & Contribution Limits

Pension Allowances 2026/27

Understanding pension allowances is crucial for maximising your retirement savings while avoiding tax charges. This guide covers all the key limits and rules for 2026/27.

Annual Allowance 2026/27

The standard Annual Allowance is £60,000 for 2026/27. This is the maximum you can contribute to pensions (including employer contributions) while still receiving tax relief.

Tax Relief on Pension Contributions

Tax Band	Tax Relief Rate
Basic Rate	20%
Higher Rate	40%
Additional Rate	45%
Scottish Top Rate	48%

How it works:

• You contribute £80
• HMRC adds £20 (20% basic rate relief)
• Your pension receives £100
• Higher/additional rate taxpayers claim extra relief through Self Assessment

Money Purchase Annual Allowance (MPAA)

If you've flexibly accessed your pension, your allowance reduces to £10,000 for money purchase pensions. This is triggered by:

• Taking an uncrystallised funds pension lump sum (UFPLS)
• Flexible drawdown
• Taking more than the 25% tax-free portion

Defined benefit pensions are not affected by the MPAA.

Tapered Annual Allowance

High earners may have their Annual Allowance reduced:

Adjusted Income	Threshold Income	Annual Allowance
Below £260,000	Any	£60,000
£260,000 - £360,000	Over £200,000	Tapered (£60,000 - £10,000)
Over £360,000	Over £200,000	£10,000 (minimum)

Taper calculation: Allowance reduces by £1 for every £2 of adjusted income above £260,000.

Carry Forward

You can carry forward unused Annual Allowance from the previous three tax years. This allows contributions above £60,000 if you have unused allowance.

Requirements:

• You were a member of a registered pension scheme in each year
• You have sufficient earnings in the current year

Lifetime Allowance (LTA)

The Lifetime Allowance charge has been abolished from 6 April 2024. However, there are still limits on:

• Tax-free lump sum: £268,275 (or your personal protected amount)
• Tax-free lump sum death benefit

Example: Maximising Relief

Higher rate taxpayer earning £80,000:

• Gross contribution: £10,000
• You pay: £8,000 (net of basic rate relief)
• Pension receives: £10,000
• Additional relief (through Self Assessment): £2,000
• Effective cost: £6,000 for £10,000 in pension

Employer Contributions

Employer contributions are particularly valuable:

• No Income Tax for you
• No National Insurance for you OR the employer
• Corporation Tax deductible for the employer
• Count towards your Annual Allowance

Salary Sacrifice for Pensions

Giving up salary in exchange for employer pension contributions:

• Reduces your taxable income
• Saves employee and employer NI
• Particularly beneficial for higher earners

Planning Strategies

1. Maximise employer matching - Free money you shouldn't miss
2. Use carry forward - Catch up if you've under-contributed
3. Consider salary sacrifice - Save on National Insurance
4. Review annually - Allowances and circumstances change
5. Mind the taper - High earners need careful planning

Calculate Your Pension Tax Relief

Use our Pension Calculator to see how much tax relief you could receive and project your retirement pot.