High earners face a reduced pension annual allowance — the 'tapered annual allowance'. If your threshold income exceeds £200,000 AND adjusted income exceeds £260,000, your £60,000 standard annual allo
Tapered Annual Allowance 2025/26
Two Income Tests
The taper applies only if BOTH conditions are met:
Threshold income exceeds £200,000 — broadly: total income minus personal pension contributions
Adjusted income exceeds £260,000 — threshold income plus all pension contributions (including employer contributions)
If threshold income is £200,000 or less: standard £60,000 annual allowance applies regardless of adjusted income.
Taper Calculation
For every £2 of adjusted income above £260,000, the annual allowance reduces by £1:
Tapered AA = £60,000 − [(adjusted income − £260,000) / 2]
Minimum tapered annual allowance: £10,000 (when adjusted income ≥ £360,000)
Example
Adjusted income £300,000 → excess = £40,000 → reduction = £20,000 → tapered AA = £40,000.
Adjusted income £380,000 → excess = £120,000 → reduction = £60,000 → BUT minimum is £10,000, so AA = £10,000.
What Counts as Pension Contribution
All pension input counts: your own contributions (personal and employer). For defined benefit (DB) schemes, the pension input is calculated as: (annual pension accrual × 16) + any lump sum accrual, minus pension at start of year × 16.
Frequently Asked Questions
What is the tapered annual allowance threshold in 2025/26?
The taper applies if threshold income exceeds £200,000 AND adjusted income exceeds £260,000. These thresholds were increased from £110,000/£150,000 in April 2020 and remain unchanged for 2025/26. The standard annual allowance is £60,000; the minimum (for very high earners) is £10,000.
What is the difference between threshold income and adjusted income?
Threshold income: total net income minus personal pension contributions (but not employer contributions). Adjusted income: threshold income plus all employer pension contributions. The distinction matters: if your employer contributes heavily to your pension (e.g., salary sacrifice), adjusted income may be much higher than threshold income.
Does salary sacrifice affect the taper?
Yes. Salary sacrifice pension contributions are treated as employer contributions for taper purposes (added back into adjusted income). They are NOT deducted from threshold income. This means salary sacrifice into a pension can push you over the £260,000 adjusted income threshold even if your salary (threshold income) is below £200,000.
What is the minimum tapered annual allowance?
£10,000 — applies when adjusted income reaches £360,000 or above (at which point the full £50,000 taper from £60,000 has been applied). Between £260,000 and £360,000 adjusted income, the allowance tapers proportionally.
What happens if I exceed my annual allowance?
Pension contributions above your annual allowance (standard or tapered) are subject to an Annual Allowance Charge — effectively income tax at your marginal rate on the excess. You can offset unused annual allowance from the three previous tax years ('carry forward') to increase your available allowance.
Can I carry forward unused annual allowance with the taper?
Yes, but the carry forward amount from previous years is limited to what your annual allowance was in those years (which may itself have been tapered). You must have been a member of a registered pension scheme in those years. Carry forward can significantly increase your effective annual allowance.
Does the money purchase annual allowance apply alongside the taper?
If you have flexibly accessed a defined contribution pension (taken income beyond 25%), the Money Purchase Annual Allowance (MPAA) of £10,000 applies to DC contributions — regardless of the tapered AA. The MPAA is not tapered further; it's a flat £10,000 cap on DC contributions.
Are DB pension accruals subject to the tapered allowance?
Yes. Pension input into DB schemes is calculated using a factor of 16× annual benefit accrual plus any lump sum growth. This can easily push DB scheme members into taper territory, especially in the NHS, teachers', and civil service pension schemes.