Pension tax relief and the annual allowance
Contributions to a registered pension scheme attract tax relief at your marginal rate. The annual allowance caps the tax-free contribution at £60,000 for the 2026-27 tax year, and a tapered allowance applies for high earners.
On this page
- Annual allowance
- £60,000 for the 2026-27 tax year (6 April 2026 to 5 April 2027).
- Earnings limit for tax relief
- 100% of relevant UK earnings (or £2,880 net if there are no earnings).GOV.UK, Tax relief
- Money purchase annual allowance
- Applies after flexibly accessing a pension pot; a lower cap applies in that case.
- Tapered annual allowance threshold income
- £200,000. Applies when threshold income is above this and adjusted income is above £260,000.
Contributions are tax-free up to the annual allowance
A registered pension scheme gives tax relief on contributions paid. Under relief at source, basic-rate taxpayers receive relief at 20%; higher-rate and additional-rate taxpayers can claim extra relief on contributions covered by income taxed at those higher rates. Relief is given automatically either by the employer taking contributions before Income Tax (net pay), or by the provider claiming 20% and adding it to the pot (relief at source). Under relief at source, higher and additional-rate taxpayers claim the extra relief through Self Assessment, or from HMRC if they do not file a return. Tax relief rates in Scotland differ from the rest of the UK. GOV.UK, Tax relief (opens in a new tab).
For every £1 contributed, a basic-rate taxpayer receives 20p back through tax relief, making the net cost 80p. This simplified illustration leaves out higher and additional-rate relief, Scottish rates and scheme-specific tax-relief administration.
The annual allowance is the most that can be saved in pension pots across all registered pension schemes in a tax year before a tax charge applies. It includes contributions made by an employer as well as the individual's own contributions. For the 2026-27 tax year the annual allowance is £60,000. GOV.UK, Annual allowance (opens in a new tab).
Tax relief is limited to 100% of relevant UK earnings. Contributions above 100% of earnings get no tax relief, and HMRC can ask for relief given over this limit to be paid back. Carry-forward applies to unused annual allowance, not to this earnings limit. GOV.UK, Tax relief (opens in a new tab).
The money purchase annual allowance applies after flexibly accessing a pension
The money purchase annual allowance (MPAA) is £10,000 for 2026-27. It applies after taking a flexible withdrawal from a defined contribution pension pot, such as a cash withdrawal from a flexi-access drawdown fund or an uncrystallised funds pension lump sum. Contributions to defined contribution schemes above this amount may be subject to an annual allowance charge. GOV.UK, Pension schemes rates (opens in a new tab).
High earners may have a reduced annual allowance
A tapered annual allowance applies when threshold income exceeds £200,000 and adjusted income exceeds £260,000. The annual allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000. Threshold income and adjusted income are calculated under HMRC rules and are not the same as total income. GOV.UK, Work out your reduced (tapered) annual allowance (opens in a new tab).
This page is an original explanation based on HMRC and GOV.UK pages under the Open Government Licence v3.0; the wording has been adapted and HMRC does not endorse this website. This page does not cover the lump sum allowance, the lifetime allowance (abolished from 2024), drawdown rules or the trivial commutation lump sum.
Unused annual allowance can be carried forward
Pension savings above the annual allowance are not taxed if there is enough unused annual allowance from the previous 3 tax years to carry forward. Unused money purchase annual allowance cannot be carried forward, and only years when the person was a member of a registered pension scheme count. GOV.UK, Check if you have unused annual allowances on your pension savings (opens in a new tab).