The pension annual allowance

There is a yearly limit

The limit on pension contributions that earn tax relief is called the annual allowance. It is £60,000, or your total earnings for the year if they are lower. It counts every contribution to every pension you have, the money you put in and the money your employer puts in for you.

What counts toward the limit

The allowance measures the total going in, not just the part you pay yourself. Your own contributions count, the money your employer pays in counts, and because salary sacrifice is in law an employer contribution, the amount you sacrifice counts too. Add all of it together, across every pension you hold, and that total is what the £60,000 is measured against.

Going over: the annual allowance charge

Going over the allowance is not simply losing relief on the extra. You get relief on the way in as normal, and then the amount above your allowance is added back to your taxable income for the year and taxed at your own rate through Self Assessment. So the excess is effectively taxed rather than relieved. HMRC calls this the annual allowance charge, and you report it on your tax return.

Carry forward can rescue you

Before you assume you owe a charge, check carry forward. You can carry forward any allowance you did not use in the previous three tax years and add it to the allowance you have this year. You use the £60,000 for this year first, then the earliest unused year, and you must have been a member of a pension scheme in the years you carry from.

For many people this is the difference between being over the limit and owing nothing at all. It is the first thing to check, not the last.

High earners: the tapered allowance

For very high earners the £60,000 allowance shrinks. This is the tapered annual allowance, and it turns on two income tests. If your threshold income is over £200,000 and your adjusted income is over £260,000, your allowance falls by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000 however high your income.

There are two tests rather than one so that a large pension contribution or salary sacrifice cannot, on its own, keep you under the line. The calculator works your tapered allowance out for you.

The money purchase allowance

There is one more limit worth knowing. Once you start flexibly drawing money from a defined contribution pension, a much lower limit replaces the £60,000 for future contributions to that kind of pension. It is the money purchase annual allowance, and it is £10,000. If it applies to you, it is easy to breach without noticing.

What this calculator shows, and what it does not

This calculator caps the relief it shows at your annual allowance, and it works out the taper for high earners. What it does not do is levy the annual allowance charge or work out your carry forward, because both depend on your pension history over several years, which the calculator does not know.

So treat any figure that goes over the limit as a prompt to check carry forward and to look at gov.uk or speak to an adviser, not as a bill. The charge is never taken out of the take-home figure shown here.

See your own numbers

Put your salary and pension contribution into the calculator. It shows your relief, your tapered allowance if you are a high earner, and how a contribution changes your take-home and your marginal rate.