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
- Maximise employer matching - Free money you shouldn't miss
- Use carry forward - Catch up if you've under-contributed
- Consider salary sacrifice - Save on National Insurance
- Review annually - Allowances and circumstances change
- 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.