Annual Allowance. Taper included.

How the pension Annual Allowance works in 2026/27

The Annual Allowance is the ceiling on tax-favoured pension saving in a single tax year. For 2026/27 it is £60,000, the figure set in April 2023, and it counts everything that goes into your pensions: your own contributions with the tax relief added, your employer's contributions, and for a defined benefit scheme the value of the benefit you built up over the year. Go over it and the excess is added back to your taxable income, which claws back the relief.

Three things can lower it. The taper for higher earners, the Money Purchase Annual Allowance for anyone who has already drawn flexibly from a pot, and the fact that tax relief on your own contributions is separately limited to 100% of your relevant UK earnings. This calculator handles the first two; the earnings limit is a separate check.

Threshold income and adjusted income

The taper uses two definitions of income, and both tests have to be failed before anything is reduced. Threshold income is your total taxable income less the gross pension contributions you paid yourself, plus any salary given up under a salary sacrifice arrangement set up on or after 9 July 2015. If it is £200,000 or less, you are not tapered, full stop. Adjusted income is your total taxable income plus every pension contribution made for you, including the employer's. If it is £260,000 or less, again you are not tapered.

Fail both and the allowance reduces by £1 for every £2 of adjusted income above £260,000. So adjusted income of £280,000 takes £10,000 off, leaving £50,000; £300,000 leaves £40,000; and at £360,000 or more the allowance sits at its floor of £10,000. The reduction is rounded down to the nearest pound.

A worked example. Income of £250,000, own contributions of £20,000, employer contributions of £30,000. Threshold income is £230,000, over the first limit. Adjusted income is £280,000, over the second. The reduction is £20,000 divided by two, so the allowance is £50,000. Contributions of £50,000 have used all of it; the headroom is nil, and any carry forward is what is left.

Why salary sacrifice does not escape the test

Salary sacrifice lowers your taxable pay and raises your employer's contribution by the same amount, which on its own would push threshold income down and could take you under £200,000. The rules close that route: any salary given up under an arrangement made on or after 9 July 2015 is added back into threshold income. It still counts in adjusted income as an employer contribution. Arrangements that predate that date keep the old treatment. Personal contributions you pay from taxed income, by contrast, genuinely reduce threshold income, which is why a large one-off personal contribution can sometimes pull a borderline earner back under the first test.

The Money Purchase Annual Allowance

Once you flexibly access a defined contribution pension, by taking taxable income from drawdown, a UFPLS lump sum or a flexible annuity, your future defined contribution saving is capped at £10,000 a year and carry forward no longer applies to it. Taking tax-free cash on its own does not trigger it, and neither does buying a conventional lifetime annuity or drawing a defined benefit pension. If you are also in a defined benefit scheme, that accrual gets an alternative allowance equal to your tapered or standard allowance less £10,000.

The charge if you go over

The excess over your available allowance, after carry forward, is added to your income for the year and taxed at your marginal rate. That is 40% or 45% for most people this applies to, or the Scottish rates if you live in Scotland. It is reported through Self Assessment. Where the charge exceeds £2,000 and your contributions to a single scheme exceed the standard £60,000, the scheme must pay the charge from your pot on request; below that, many schemes will still pay it voluntarily. The estimate here uses the main UK bands; your actual marginal rate may differ.

Things this tool deliberately doesn't model

Defined benefit pension input amounts, which are the growth in your accrued pension times 16 after an inflation adjustment; enter the figure from your scheme statement instead. Protected pension ages, Scottish income tax bands for the charge, and the separate 100% of earnings limit on tax relief. It also assumes your contributions and income fall in the same tax year, which is nearly always right.