Pension Annual Allowance 2026/27: Limits, Carry Forward & Tapering Explained

The pension annual allowance sets the ceiling on how much you can save into pensions each tax year before HMRC starts clawing money back. For 2026/27, that ceiling is £60,000 — but for many people, it's significantly lower.

Whether you're a higher earner caught by the taper, someone who's already accessed their pension, or simply trying to maximise contributions using carry forward, this guide covers the rules that matter.

What Is the Pension Annual Allowance?

The annual allowance is the maximum total contribution that can be paid into all your pension schemes in a single tax year (6 April to 5 April) without triggering a tax charge.

For 2026/27, the standard annual allowance is £60,000.

This limit covers:

• Your personal contributions (including any tax relief added)
• Employer contributions (including salary sacrifice amounts)
• Third-party contributions (anyone else paying into your pension)

For defined benefit (final salary) schemes, it's not cash contributions that count but the increase in the value of your benefits over the year, calculated using a specific HMRC formula.

The £60,000 limit was set in April 2023, up from £40,000 in the previous tax year. It's one of the most significant pension changes in recent years and gives most people considerably more room to build their retirement savings.

A Quick Example

Sarah earns £75,000 and contributes 8% of her salary to her workplace pension (£6,000). Her employer contributes 5% (£3,750). Her total pension input for the year is £9,750 — well within the £60,000 allowance.

But what if Sarah also has a SIPP and wants to make a large one-off contribution? She could add up to £50,250 more (£60,000 minus £9,750) without exceeding the allowance. And if she has unused allowance from previous years, she could potentially contribute even more using carry forward.

2026/27 Annual Allowance Limits at a Glance

Allowance Type	Limit	Who It Affects
Standard annual allowance	£60,000	Most people
Tapered annual allowance	£10,000–£60,000	Adjusted income over £260,000
Money purchase annual allowance (MPAA)	£10,000	Anyone who's flexibly accessed a DC pension

The standard allowance applies by default. The taper and MPAA are restrictions that kick in under specific circumstances — and they can't be combined in your favour. If both apply, you get the lower of the two.

Carry Forward: Using Unused Allowance From Previous Years

This is one of the most powerful and underused pension planning tools available.

If you didn't use your full annual allowance in any of the previous three tax years, you can carry that unused amount forward and add it to your current year's allowance.

For 2026/27, you can potentially draw on unused allowance from:

Tax Year	Standard Allowance
2023/24	£60,000
2024/25	£60,000
2025/26	£60,000
2026/27 (current)	£60,000

How Carry Forward Works

The rules are straightforward but precise:

1. You must use the current year's allowance first. Carry forward only applies to contributions that exceed £60,000.
2. Unused allowance is used from the earliest year first. If you have unused allowance from 2023/24, 2024/25, and 2025/26, the 2023/24 amount is used before the others.
3. You must have been a member of a registered pension scheme in each year you're carrying forward from. You don't need to have made contributions — just been a member.
4. 2023/24 is the last year you can carry forward from in 2026/27. Any unused allowance from 2022/23 or earlier is gone.

Carry Forward Example

James earned a steady salary but only contributed the minimum to his workplace pension for years. His pension inputs and allowances looked like this:

Tax Year	Allowance	Contributions	Unused
2023/24	£60,000	£6,000	£54,000
2024/25	£60,000	£6,000	£54,000
2025/26	£60,000	£6,000	£54,000

In 2026/27, James receives a large bonus and wants to make a substantial pension contribution. His maximum allowable contribution is:

• Current year: £60,000
• Carry forward from 2023/24: £54,000
• Carry forward from 2024/25: £54,000
• Carry forward from 2025/26: £54,000
• Total: £222,000

That's a huge potential contribution — and every penny benefits from pension tax relief. For a higher-rate taxpayer, a £222,000 gross contribution would effectively cost around £133,200 after tax relief.

One critical caveat: your contributions are limited by your relevant UK earnings. You can only receive tax relief on contributions up to 100% of your earnings in that tax year (or £3,600 gross, whichever is higher). So James would need to earn at least £222,000 in 2026/27 to contribute the full amount.

Tapered Annual Allowance for High Earners

If you're a high earner, your annual allowance may be reduced — potentially all the way down to £10,000.

The taper applies in 2026/27 if both of these conditions are met:

• Your threshold income exceeds £200,000
• Your adjusted income exceeds £260,000

What Are Threshold and Adjusted Income?

These aren't the same as your salary:

Threshold income is broadly your net income minus any personal pension contributions made under relief at source. It's designed as a gateway test — if you're below £200,000, the taper doesn't apply regardless of your adjusted income.

Adjusted income is your threshold income plus any employer pension contributions (including salary sacrifice). This is the figure that determines how much your allowance is reduced.

How the Taper Works

For every £2 of adjusted income above £260,000, your annual allowance is reduced by £1.

Adjusted Income	Tapered Allowance
£260,000 or below	£60,000 (full)
£280,000	£50,000
£300,000	£40,000
£320,000	£30,000
£340,000	£20,000
£360,000 or above	£10,000 (minimum)

The minimum tapered allowance is £10,000, reached at adjusted income of £360,000.

Taper Planning Example

Dr. Patel is an NHS consultant earning £180,000 with employer pension contributions of £90,000 (a common scenario in the NHS defined benefit scheme where the "contribution" is the increase in benefit value).

• Threshold income: £180,000 — below £200,000? No, because we need to account for salary sacrifice or other adjustments. Let's say threshold income is £180,000.
• Adjusted income: £180,000 + £90,000 = £270,000

Since both thresholds are exceeded, Dr. Patel's allowance is tapered:

• Adjusted income exceeds £260,000 by £10,000
• Allowance reduced by £10,000 ÷ 2 = £5,000
• Tapered allowance: £55,000

If the pension input (increase in DB benefits) exceeds £55,000, Dr. Patel faces an annual allowance tax charge on the excess.

This is one reason many NHS consultants and high-earning professionals have historically reduced their hours — the tax charge can make additional work financially counterproductive.

Money Purchase Annual Allowance (MPAA)

The MPAA is a separate restriction that applies once you've flexibly accessed a defined contribution pension.

The MPAA for 2026/27 is £10,000.

What Triggers the MPAA?

The MPAA kicks in when you:

• Take income from flexi-access drawdown (not just designate funds — actually withdraw)
• Take an uncrystallised funds pension lump sum (UFPLS)
• Take a short-term annuity from a flexi-access drawdown fund
• Receive payments from a flexible annuity where the amount has decreased

What Doesn't Trigger the MPAA?

These actions are safe:

• Taking your 25% tax-free cash and moving the rest into drawdown (without withdrawing from drawdown)
• Buying a lifetime annuity
• Taking a small pot lump sum (pots under £10,000)
• Receiving income from a capped drawdown fund (pre-April 2015 arrangement, provided you stay within the cap)

Why the MPAA Matters

The MPAA exists to prevent pension recycling — where someone withdraws pension money, gets tax relief re-contributing it, and effectively double-dips on the tax benefit.

But it catches legitimate cases too. If you're semi-retired and drawing a small income from one pension while still working and contributing to another, your new contributions are capped at £10,000 per year — a dramatic reduction from the standard £60,000.

Crucially, you cannot use carry forward with the MPAA. Once the MPAA applies to your money purchase (defined contribution) savings, the £10,000 limit is fixed. You can still have a separate allowance for defined benefit accrual (called the "alternative annual allowance"), but the money purchase side is permanently restricted.

MPAA Example

Rachel, 58, took £15,000 from her SIPP via flexi-access drawdown last year to bridge a gap between jobs. She's now back in employment, earning £50,000, and wants to rebuild her pension.

Her maximum contribution to defined contribution pensions is now £10,000 per year — including employer contributions. If her employer contributes £2,500, she can only add £7,500 herself.

The lesson: think carefully before accessing your pension flexibly, especially if you plan to continue working and saving.

What Happens If You Exceed the Annual Allowance?

If your total pension inputs exceed your available annual allowance (including any carry forward), you'll face the annual allowance tax charge.

The charge is straightforward: the excess is taxed at your marginal income tax rate. In effect, HMRC reverses the tax relief you shouldn't have received.

For example, if you exceed the allowance by £10,000 and you're a higher-rate taxpayer:

• Tax charge: £10,000 × 40% = £4,000

Paying the Charge

You have two options:

1. Pay it yourself via Self Assessment (you must complete the pension savings tax charges section, even if the amount is nil after scheme pays)
2. Scheme pays — ask your pension provider to pay the charge from your pension pot. This is mandatory for the provider to offer if the charge exceeds £2,000 and arises from that scheme. You must notify them by 31 July following the end of the tax year.

Scheme pays reduces your pension pot, but it avoids the cash flow hit of paying the charge from your bank account. For large charges, it's often the pragmatic choice.

Plan Your Contributions

Getting your pension contributions right is a balancing act. Contribute too little and you're leaving tax relief on the table. Contribute too much and you're handing HMRC a tax charge that wipes out the benefit.

The key steps:

1. Know your allowance. Standard £60,000, tapered if you're a high earner, or £10,000 MPAA if you've flexibly accessed a pension.
2. Check your carry forward. Look at the previous three tax years — any unused allowance can be brought forward.
3. Count all contributions. Yours, your employer's, salary sacrifice — it all counts.
4. Watch the earnings cap. Tax relief is limited to 100% of your UK earnings.
5. Monitor defined benefit accrual. If you're in a DB scheme, the annual increase in your benefits counts towards the allowance — and this can be surprisingly high.

Want to see how different contribution levels affect your projected retirement income? Use the PoundSense pension calculator to model scenarios — whether you're maximising your standard allowance, using carry forward to make a one-off boost, or planning contributions around the taper.

Key Takeaways

• The standard annual allowance for 2026/27 is £60,000 — covering all pension contributions from all sources.
• Carry forward lets you use up to three years of unused allowance, potentially allowing contributions well above £60,000.
• High earners (adjusted income over £260,000) face a tapered allowance that can drop as low as £10,000.
• The MPAA (£10,000) applies permanently once you flexibly access a defined contribution pension — and carry forward doesn't help.
• Exceeding the allowance triggers a tax charge at your marginal rate, reversible only by careful planning.

Getting these limits right is one of the highest-value moves in pension planning. A single well-timed carry forward contribution can be worth tens of thousands in retirement income. Conversely, accidentally triggering the MPAA or ignoring the taper can leave you with an unwelcome tax bill.

If you're unsure where you stand, check your projected retirement income with PoundSense — it's free, takes 60 seconds, and helps you see exactly what your current contributions are building towards.