The Pension Annual Allowance is the maximum you can contribute to pensions each year while receiving tax relief. For the 2024/25 tax year, the standard Annual Allowance is £60,000.
Contribute more than your allowance and you'll face a tax charge that claws back the excess relief. But there's flexibility built into the system: carry forward lets you use unused allowance from previous years.
#What Counts Towards the Annual Allowance
Your Annual Allowance includes all pension contributions from all sources:
- Your personal contributions (including salary sacrifice)
- Employer contributions
- Contributions to workplace pensions
- Contributions to SIPPs or personal pensions
- Third-party contributions (someone else paying into your pension)
If you have multiple pensions, they all count towards the same £60,000 limit.
#Example
You earn £80,000. Your employer contributes 5% (£4,000). You contribute 5% via salary sacrifice (£4,000). You also have a SIPP where you contribute £500/month (£6,000/year).
Total pension input: £4,000 + £4,000 + £6,000 = £14,000
You've used £14,000 of your £60,000 allowance. You could contribute up to £46,000 more this tax year.
#The Earnings Cap
You can only get tax relief on contributions up to your relevant UK earnings. If you earn £40,000, your maximum tax-relieved contribution is £40,000, not £60,000.
There's one exception: everyone can contribute up to £3,600 gross (£2,880 net after basic rate relief) regardless of earnings. This is useful for non-working spouses or people with very low income.
#Carry Forward: Using Unused Allowance
If you didn't use your full Annual Allowance in previous tax years, you can carry forward the unused amount. You can go back three tax years.
| Tax Year |
Annual Allowance |
You Used |
Unused (Carry Forward) |
| 2021/22 |
£40,000 |
£10,000 |
£30,000 |
| 2022/23 |
£40,000 |
£15,000 |
£25,000 |
| 2023/24 |
£60,000 |
£20,000 |
£40,000 |
| 2024/25 |
£60,000 |
— |
£60,000 |
| Total available |
|
|
£155,000 |
In this example, someone who contributed modestly in previous years could contribute up to £155,000 in 2024/25.
#Requirements for Carry Forward
To use carry forward, you must:
- Have been a member of a registered pension scheme in the year you want to carry forward from (even if you contributed nothing)
- Have sufficient earnings in the current year to support the contribution
- Use the current year's allowance first, then carry forward in order (oldest year first)
#The Earnings Requirement
Carry forward lets you use old allowance, but you still need earnings to support the contribution. If you want to contribute £100,000 this year using carry forward, you need to have earned at least £100,000.
This catches people who receive a one-off windfall (inheritance, property sale) but don't have the earnings to match. The money exists, but the tax relief requires earnings.
#When Carry Forward Matters
#Bonus Years
You receive a £50,000 bonus on top of your £80,000 salary. Total income: £130,000. You're deep in the 60% tax trap.
If you've used little pension allowance in previous years, you could potentially sacrifice most of that bonus into your pension, using current year allowance plus carry forward. A £50,000 contribution would save you roughly £30,000 in tax and NI (given the 60% trap plus NI).
#Selling Assets
You sell shares or a second property, generating a large capital sum. While this doesn't create earnings, you might have salary or self-employment income that supports a large pension contribution. Carry forward lets you shelter more of your regular income in pensions, freeing up cash from the asset sale for other uses.
#Catch-Up Contributions
You've been prioritising mortgage repayment or other goals and haven't contributed much to pensions. Now you're ready to catch up. Carry forward gives you a three-year window to make up for lower contributions.
#Pre-Retirement Push
You're 55 and want to maximise your pension before retirement. If you have unused allowance from recent years, you can contribute more aggressively now.
#The Tapered Annual Allowance
Very high earners face a reduced Annual Allowance. The taper kicks in when:
- Your "threshold income" exceeds £200,000, AND
- Your "adjusted income" exceeds £260,000
Threshold income = total income minus personal pension contributions
Adjusted income = threshold income plus employer pension contributions
If both conditions are met, your Annual Allowance reduces by £1 for every £2 of adjusted income above £260,000. The minimum is £10,000 (reached at adjusted income of £360,000+).
| Adjusted Income |
Annual Allowance |
| £260,000 or below |
£60,000 |
| £280,000 |
£50,000 |
| £300,000 |
£40,000 |
| £320,000 |
£30,000 |
| £340,000 |
£20,000 |
| £360,000+ |
£10,000 |
#Who This Affects
The taper mainly affects:
- Senior executives with large salaries
- Business owners extracting significant dividends
- Partners in professional services firms
- People with substantial investment income
If you earn under £200,000 (after pension contributions), the taper doesn't apply to you regardless of employer contributions.
#Avoiding the Taper
Since threshold income excludes personal pension contributions, you can sometimes stay below the £200,000 threshold by increasing your own contributions (via salary sacrifice or personal contributions).
Example: You earn £220,000 salary. If you sacrifice £25,000 into your pension, your threshold income drops to £195,000. The taper doesn't apply, and you keep the full £60,000 allowance.
#The Money Purchase Annual Allowance
If you've flexibly accessed your pension (taken more than the 25% tax-free lump sum), your Annual Allowance drops to £10,000 for money purchase (defined contribution) pensions.
This catches people who:
- Started drawdown and took taxable income
- Took an uncrystallised funds pension lump sum (UFPLS)
- Cashed in a small pension pot
Taking only your 25% tax-free cash doesn't trigger this. Neither does taking a defined benefit pension or buying an annuity.
If you're considering accessing your pension flexibly, check whether you might want to make significant contributions in future. Once triggered, the MPAA is permanent.
#What Happens If You Exceed the Allowance
If your total pension contributions exceed your available Annual Allowance (including carry forward), you pay an Annual Allowance Charge.
The charge taxes the excess at your marginal rate. If you exceeded by £10,000 and you're a higher rate taxpayer, you'd owe £4,000.
The charge is reported through Self Assessment. If it's over £2,000 and your pension scheme agrees, you can ask the scheme to pay it from your pension pot ("Scheme Pays").
#Accidental Breaches
Most breaches happen when people:
- Don't realise employer contributions count
- Have multiple pensions and lose track
- Receive a large bonus that triggers additional employer contributions
- Don't account for defined benefit accrual correctly
Workplace pensions often auto-enrol you at a percentage of salary. If you also have a SIPP and make large contributions, check you're not exceeding the total.
#Defined Benefit Pensions
If you have a defined benefit (final salary or career average) pension, calculating your Annual Allowance usage is more complex.
Your "pension input amount" is the increase in the value of your benefits over the year, multiplied by 16, plus any increase in your lump sum entitlement.
Example: Your annual pension entitlement increases from £20,000 to £22,000 during the year. Pension input: (£22,000 - £20,000) × 16 = £32,000.
This counts towards your £60,000 allowance alongside any defined contribution contributions.
For most people in DB schemes, the scheme administrator calculates this and provides annual statements.
#Checking Your Position
To calculate your available Annual Allowance:
- Find your pension contributions for the current tax year (all sources)
- Check previous years' pension statements for unused allowance
- Confirm you were a pension scheme member in each year you want to carry forward from
- Verify your earnings support the total contribution you want to make
Your pension provider(s) can provide statements showing your contributions. HMRC's online portal shows your tax record if you need to verify earnings.
#Frequently Asked Questions
#Does my employer's contribution count towards my allowance?
Yes. All contributions from any source count towards your single Annual Allowance. Your contribution, employer contribution, salary sacrifice amounts—all of it.
#Can I contribute more than I earn?
Not with tax relief (except for the £3,600 gross minimum). You can technically pay more into a pension, but you won't get tax relief on the excess and you might face the Annual Allowance Charge.
#What if I wasn't in a pension scheme three years ago?
You can only carry forward from years when you were a member of a registered pension scheme. If you joined a scheme in 2023, you can't carry forward from 2021/22.
#Does the Annual Allowance include my tax-free cash?
No. The Annual Allowance limits contributions (inputs). Tax-free cash is about withdrawals (outputs). They're separate rules.
#Can I use carry forward for a SIPP contribution?
Yes. Carry forward applies across all pension types. You can use old workplace pension allowance for a new SIPP contribution, or vice versa.
#What's the deadline for using carry forward?
Carry forward allowance from three years ago expires at the end of the current tax year. For 2024/25, you can still use allowance from 2021/22, but only until 5 April 2025. After that, it's gone.
#Does salary sacrifice count differently?
No. Salary sacrifice is an employer contribution for Annual Allowance purposes. It counts the same as any other contribution towards your £60,000 limit.