Understanding the Pension Annual Allowance 2025/26
The pension annual allowance (AA) is the maximum total amount that can be contributed to all your pensions in a tax year while still benefiting from tax relief. For 2025/26, the standard annual allowance is £60,000 — unchanged from 2024/25 following a significant increase from the previous £40,000 limit.
What Counts Towards the Annual Allowance?
The annual allowance applies to all registered pension schemes combined. Your pension input amount (PIA) is calculated differently depending on the type of pension:
Defined Contribution (DC): PIA = total employer contributions + total employee contributions this year
Defined Benefit (DB): PIA = (increase in annual pension × 16) + any increase in lump sum entitlement
Both types: Add the DC PIA and DB PIA together
DB Members: You need a pension input statement from your scheme administrator to get your precise PIA. Your statement shows the opening and closing values of your pension rights in the pension input period.
Tapered Annual Allowance — Who It Affects
High earners face a reduced — or "tapered" — annual allowance. The taper applies when both conditions are met:
Threshold income exceeds £200,000 (income before pension contributions)
Adjusted income exceeds £260,000 (income after adding back employer pension contributions)
When both thresholds are breached, the annual allowance reduces by £1 for every £2 of adjusted income above £260,000. The minimum tapered allowance is £10,000, reached when adjusted income is £360,000 or more.
Adjusted Income
Annual Allowance
Up to £260,000
£60,000 (full)
£280,000
£50,000
£300,000
£40,000
£320,000
£30,000
£340,000
£20,000
£360,000+
£10,000 (minimum)
Money Purchase Annual Allowance (MPAA)
Once you flexibly access a defined contribution pension — for example, by taking an uncrystallised fund pension lump sum, entering flexi-access drawdown, or buying a flexible annuity — the MPAA of £10,000 applies to all future DC contributions. The MPAA cannot be increased by carry forward.
Important: The MPAA only restricts DC contributions. You may still be able to make DB pension accrual up to your remaining AA (standard or tapered minus the DC element).
Annual Allowance Tax Charge
If your pension input amount exceeds your annual allowance, the excess is added to your income and taxed at your marginal rate — 20%, 40%, or 45%. You must report this on your Self Assessment tax return.
In some cases you can ask your pension scheme to pay the charge through scheme pays (mandatory if the charge is at least £2,000 and excess is at least £10,000). Your pension pot is then reduced accordingly.
Historic Annual Allowances
Tax Year
Annual Allowance
2019/20 – 2022/23
£40,000
2023/24
£60,000
2024/25
£60,000
2025/26
£60,000
How to Avoid an Annual Allowance Charge
The most effective way to avoid paying a charge is to use carry forward — you can bring unused annual allowance from the previous three tax years into the current year, provided you were a member of a registered pension scheme in those years. See our Carry Forward Pension Calculator for a detailed breakdown.
Other strategies include:
Spreading contributions across tax years
Timing employer contributions carefully
Requesting your employer redirect some contributions to a cash bonus instead
For DB members: opting for a lower accrual rate (check with your scheme)
Frequently Asked Questions
What is the pension annual allowance for 2025/26?
The standard pension annual allowance for 2025/26 is £60,000. This is the maximum total pension contributions (employer plus employee, across all schemes) that can benefit from tax relief in one tax year. It was raised from £40,000 to £60,000 in April 2023 and has remained at that level.
How is the tapered annual allowance calculated?
The taper applies when your threshold income is above £200,000 AND your adjusted income exceeds £260,000. For every £2 of adjusted income above £260,000, your AA reduces by £1. The minimum is £10,000 (reached when adjusted income is £360,000+). Threshold income = net income + salary sacrifice, minus personal pension contributions. Adjusted income = threshold income + employer pension contributions.
What happens when I flexibly access my pension?
Flexibly accessing a defined contribution pension — via drawdown, UFPLS, or a flexible annuity — triggers the Money Purchase Annual Allowance (MPAA) of £10,000. This permanently restricts how much you can pay into DC pensions with tax relief. You should notify your pension providers within 91 days. Defined benefit accrual may still be possible up to the standard (or tapered) AA minus your DC contributions.
Do employer contributions count towards the annual allowance?
Yes — for defined contribution pensions, your pension input amount is the combined total of employer and employee contributions. Both count. For defined benefit schemes, the PIA is based on the increase in the value of your pension promise (not just contributions paid), so employer contributions aren't added separately — the accrual value already reflects them.
Can I pay more than £60,000 if I use carry forward?
Yes. Carry forward lets you use unused annual allowance from the previous three tax years. In 2025/26 you could potentially carry forward up to £60,000 (2024/25) + £60,000 (2023/24) + £40,000 (2022/23) = £160,000, making a total of up to £220,000 — subject to your earned income and MPAA rules. Use our Carry Forward Calculator.
How do I get my DB pension input statement?
Contact your defined benefit scheme administrator and request a pension input statement for the relevant pension input period. They are legally required to provide this on request. The statement shows your opening and closing pension rights, from which the PIA is calculated as (closing value − opening value), using the formula: (annual pension increase × 16) + any lump sum increase.
Can I use scheme pays to settle my annual allowance charge?
Yes — mandatory scheme pays is available if your annual allowance charge is at least £2,000 and the excess contributions are at least £10,000. The scheme pays the charge to HMRC and reduces your pension pot by an actuarially equivalent amount. Voluntary scheme pays may be available for smaller charges — check with your scheme. You must elect for scheme pays by 31 July following the relevant tax year.
Financial tools specialist at UKCalculator. Mustafa builds accurate, regulation-aligned UK tax and pension calculators to help individuals navigate complex financial rules. Updated for 2025/26 tax year. Last reviewed: February 2026.