The Annual Allowance is the cornerstone of pension tax planning in the UK. It sets the limit on how much can be saved into pensions in a given tax year while benefiting from tax relief. For high earners, internationally mobile professionals, and those planning to maximise contributions before retirement or before leaving the UK, understanding its mechanics — and its interplay with the tapered allowance, carry forward, and the now-abolished Lifetime Allowance — is essential.
The Standard Annual Allowance
The Annual Allowance (AA) for 2026/27 is £60,000.
This was restored to £60,000 from 6 April 2023, having been reduced to £40,000 from April 2014. The increase followed the government's decision to abolish the Lifetime Allowance (LTA) — a linked policy designed to encourage senior professionals (particularly NHS clinicians who had been leaving work early due to LTA-related tax charges) to remain in employment and maximise pension savings.
The Annual Allowance covers:
- Personal contributions to personal pensions (SIPPs, PPPs)
- Employer contributions to any registered pension scheme
- DB accrual (calculated using a specific formula — see below)
Contributions receive UK income tax relief at the member's marginal rate. A 45% taxpayer making a £60,000 gross contribution into a personal pension receives up to £27,000 in income tax relief (part via the pension provider claiming basic rate, and part via the individual's self-assessment return for higher/additional rate).
Employer Contributions Count
A common misunderstanding is that only personal contributions count towards the Annual Allowance. All pension inputs count — personal contributions, employer contributions, and (for defined benefit schemes) the notional value of benefits accrued during the year.
For defined contribution schemes: total pension input = personal contributions + employer contributions.
A member contributing £15,000 personally with an employer contributing £20,000 has a total pension input of £35,000, leaving £25,000 of Annual Allowance remaining for additional contributions.
DB Scheme Accrual: The Input Measure
For defined benefit (final salary) pension schemes, there are no contributions as such — instead, HMRC calculates the pension input amount using the following formula:
Pension Input = (CY benefit × 16 + CY lump sum) − (PY benefit × 16 + PY lump sum)
Where:
- CY benefit = projected annual pension at Normal Retirement Age at end of current pension input period
- PY benefit = projected annual pension at Normal Retirement Age at end of previous pension input period, revalued by CPI to the end of current period
- CY lump sum and PY lump sum = projected tax-free lump sums (where applicable)
The multiplier of 16 is set by HMRC to convert DB annual income into a notional capital equivalent.
For a member whose annual DB pension increased from £20,000 to £22,000 during the year (after CPI revaluation), the pension input amount = £352,000 − £320,000 = £32,000 — consuming more than half of the standard Annual Allowance.
High-earning public sector workers (NHS, teachers, civil servants) with rapidly accruing DB pensions are most exposed to Annual Allowance breaches.
The Tapered Annual Allowance
For high earners, the Annual Allowance reduces on a taper basis. The tapering rules apply where:
- Threshold Income (broadly: income before pension contributions) exceeds £200,000, AND
- Adjusted Income (broadly: income including employer pension contributions) exceeds £260,000
Where both conditions are met, the Annual Allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000.
| Adjusted Income | Tapered Annual Allowance |
|---|---|
| £260,000 | £60,000 (full) |
| £300,000 | £40,000 |
| £360,000 | £10,000 (minimum) |
| £360,000+ | £10,000 |
Implications for HNW Individuals
For a high earner with adjusted income of £380,000, the AA is £10,000. Any pension input beyond £10,000 is subject to the Annual Allowance Charge — a tax charge at the individual's marginal rate on the excess. At a 45% additional rate, exceeding the tapered allowance can be extremely costly.
The threshold income of £200,000 (net of personal contributions) means that some individuals can reduce their adjusted income below the taper trigger by making larger personal contributions — this is a legitimate planning strategy but requires careful modelling.
Carry Forward
Carry forward allows you to supplement the current year's Annual Allowance with unused allowance from the previous three tax years.
Rules for Carry Forward
- You must be a member of a registered pension scheme in each of the years from which you wish to carry forward (even if you made no contributions — simply being a member of a workplace pension qualifies)
- You must use the current year's Annual Allowance in full before using carry forward
- Carry forward is used in chronological order — the oldest year first
- Unused allowance from DB scheme years is still calculated using the pension input formula
Example: Large One-Off Contribution
| Tax Year | Annual Allowance | Pension Input | Unused Allowance |
|---|---|---|---|
| 2023/24 | £60,000 | £35,000 | £25,000 |
| 2024/25 | £60,000 | £10,000 | £50,000 |
| 2025/26 | £60,000 | £10,000 | £50,000 |
| 2026/27 | £60,000 | Current year | + £125,000 carry forward = £185,000 total |
In this scenario, a member who has been building up unused allowance could make a gross pension contribution of up to £185,000 in 2026/27 (subject to having sufficient UK earnings) — a powerful vehicle for accelerated pension saving ahead of a significant event such as a business sale, bonus, or pre-emigration planning.
Carry Forward and Expats
Carry forward can only be used if you have UK-source earnings in the current tax year (the year of the large contribution) sufficient to support the contribution. Non-UK residents without UK earnings cannot use carry forward — they are limited to £3,600 gross per year.
This makes the period immediately before leaving the UK particularly valuable for pension planning. If you have significant unused allowances from prior years and substantial UK earnings in your final year of UK tax residence, maximising contributions in that year can be highly tax-efficient.
The Money Purchase Annual Allowance (MPAA)
Once you have flexibly accessed a defined contribution pension — taken any income beyond the Pension Commencement Lump Sum (PCLS) — the MPAA is triggered. This reduces your Annual Allowance for defined contribution pensions to £10,000 per year for all subsequent tax years.
What Triggers the MPAA?
- Taking flexi-access drawdown income (beyond PCLS)
- Taking an Uncrystallised Fund Pension Lump Sum (UFPLS)
- Does not include: taking the PCLS (25% tax-free cash) only; purchasing a lifetime annuity
What Does Not Trigger the MPAA?
- Taking only the tax-free cash (PCLS) and leaving the rest unaccessed
- Using a small pots payment (pots under £10,000)
- Continuing to accrue in a DB scheme (the MPAA only applies to defined contribution inputs)
The MPAA is particularly important for expats who:
- May return to the UK and rejoin the workforce
- Have self-employment income in the UK in later years
- Wish to make further pension contributions after accessing a pension
Do not trigger the MPAA unless you have accepted you will not be making significant future DC pension contributions.
The Lump Sum Allowance and Death Benefits Allowance
The Lifetime Allowance (LTA) — previously £1,073,100 — was abolished from 6 April 2024. In its place, two new allowances limit the tax-free cash available:
Lump Sum Allowance (LSA): £268,275
This limits the total tax-free cash (PCLS) you can take from all pension arrangements over your lifetime. Once this allowance is exhausted, any further lump sums are taxed as income.
For those who had existing LTA fixed or enhanced protection at amounts above £268,275, these protections continue to provide higher LSA limits — this is an area requiring specific professional advice.
Lump Sum and Death Benefits Allowance (LSDBA): £1,073,100
This covers both lifetime lump sums and lump sum death benefits paid before age 75. Where both types of lump sum are paid, the combined total is tested against this allowance.
Practical Implications
For most pension savers with pots up to approximately £1 million, the abolition of the LTA and introduction of the LSA/LSDBA is broadly neutral or mildly beneficial. For those with very large pots — accumulated over long careers — the loss of LTA-linked protections requires careful recalculation of the tax-free cash position.
Breaching the Annual Allowance
Where pension inputs exceed the Annual Allowance (including carry forward), the excess is subject to the Annual Allowance Charge. This is charged at the individual's marginal income tax rate and is reported via Self Assessment.
In some cases, DB scheme members can ask the scheme to pay the charge on their behalf in exchange for a reduction in their pension rights — this is called the scheme pays mechanism. Schemes are obliged to offer it where the charge exceeds £2,000 and the individual's pension input from that scheme exceeds the AA.
How Global Investments Can Help
Our pensions team works with high earners, business owners, and internationally mobile professionals to optimise pension contributions before, during, and after periods of overseas residence.
We can assist with:
- Calculating your available Annual Allowance including carry forward analysis
- Modelling the tapered allowance position for high earners
- Planning contributions in the year of departure to maximise pre-emigration pension savings
- Advising on MPAA implications before flexibly accessing a pension
- Coordinating pension input with LSA/LSDBA position for those with significant pots
Visit /uk-pensions/guides/ for all our UK pension guides for expats. This content is for informational purposes and does not constitute regulated financial advice. Pension tax rules are subject to change. Seek qualified advice tailored to your personal circumstances.
Frequently Asked Questions
What is the UK Annual Allowance for pensions?
The Annual Allowance is £60,000 for the 2026/27 tax year. It covers all contributions to UK pension schemes — personal, employer, and the notional 'input' from DB scheme accrual — that benefit from UK tax relief.
What is the Money Purchase Annual Allowance?
The MPAA is a reduced annual allowance of £10,000 that applies once you have flexibly accessed a pension — taken any income beyond the tax-free cash lump sum. It limits future defined contribution pension inputs to £10,000 per year.
Has the Lifetime Allowance been abolished?
Yes. The Lifetime Allowance was abolished from 6 April 2024. In its place, two new allowances limit the amount of tax-free cash: the Lump Sum Allowance (£268,275) and the Lump Sum and Death Benefits Allowance (£1,073,100).
What is carry forward and how does it work?
Carry forward allows you to use unused Annual Allowance from the previous three tax years, in addition to the current year's allowance. It requires you to have been a member of a registered pension scheme in each of those years and to have used the current year's full allowance first.
Can expats use carry forward if they are no longer UK tax resident?
Carry forward can only be used if you have UK earnings (employment or self-employment) in the current tax year sufficient to support the contribution. Non-UK residents without UK earnings are limited to £3,600 gross per year regardless of unused carry forward.
This guide is for general information only and does not constitute financial, legal or tax advice. Pension rules, tax rates and programme details change; verify current requirements with a qualified and FCA-regulated pensions adviser before acting. Pension transfers involving defined benefits over £30,000 require regulated advice.