You can contribute up to £60,000 a year to your pension and receive tax relief on it — the Annual Allowance for 2026/27, covering your own contributions, your employer's, and any third party's combined. Relief is paid at your marginal tax rate: 20% for basic-rate taxpayers, 40% for higher-rate, 45% for additional-rate, meaning a £10,000 contribution can cost a higher-rate taxpayer as little as £6,000 out of pocket. Carry forward lets you use unused allowance from the previous three tax years on top of this year's £60,000, potentially allowing a single contribution of up to £240,000. High earners with adjusted income above £260,000 have a reduced, tapered allowance, down to a minimum of £10,000.
Pension tax relief is arguably the single most generous, most underused tax break available to UK earners, and the reason is almost always the same: people don't realise how much they're allowed to put in, or how much the government effectively adds on top. This article sets out the actual numbers for 2026/27, not rules of thumb.
01 The £60,000 annual allowance
The Annual Allowance for 2026/27 is £60,000 — the total that can go into your pensions in a tax year while still attracting tax relief, combining your own contributions, employer contributions, and any defined benefit accrual, across every scheme you hold. It's not £60,000 per scheme; it's £60,000 total. Relief on your own personal contributions is separately capped at the greater of £3,600 gross or 100% of your relevant UK earnings, whichever is higher — which is why someone with no earned income can still contribute £2,880 net and receive the government top-up, even at zero salary.
02 How tax relief actually works, worked example
Tax relief means the government effectively refunds the tax you'd otherwise have paid on the money you're putting into your pension. The mechanism depends on how your contribution is made, but the outcome is the same: money that would have gone to HMRC goes into your pension instead.
Ravi's pension provider automatically claims the basic-rate 20% top-up and adds it to his pot — that part happens without him doing anything. The additional 20% he's due as a higher-rate taxpayer doesn't arrive automatically; he has to claim it through Self Assessment, either as a tax code adjustment or a repayment. Missing this step is one of the most common ways higher-rate taxpayers leave real money unclaimed.
03 Carry forward: using three years of unused allowance
If you haven't used your full £60,000 allowance in the three previous tax years, you can bring the unused amount forward and add it to this year's allowance — useful after a strong bonus year, a business sale, or simply catching up after years of modest contributions. For 2026/27, the three carry-forward years are 2023/24, 2024/25 and 2025/26, each also carrying a £60,000 allowance.
Naomi's company made an unusually large profit this year, and she wants to extract value tax-efficiently rather than draw it all as a dividend. An employer pension contribution of this size reduces the company's Corporation Tax bill, carries no National Insurance, and avoids dividend tax entirely — provided her earnings and the contribution stay within HMRC's wider rules on wholly-and-exclusively business expenditure.
You must have been a member of a pension scheme in each year you're carrying forward from — you don't need to have contributed anything that year, simply being enrolled is enough. You also have to use the current year's allowance first before dipping into carried-forward amounts.
04 The tapered allowance for high earners
If your adjusted income (broadly, total income plus employer pension contributions) exceeds £260,000, your Annual Allowance tapers down by £1 for every £2 above that threshold, to a minimum of £10,000 once adjusted income reaches £360,000. This taper is calculated separately from carry forward — you can still carry forward unused allowance from previous years even while tapered in the current year, though the previous years' own allowances may also have been tapered if income was high then too.
05 Employer contributions and salary sacrifice
Employer contributions count toward the same £60,000 allowance but are treated differently for relief purposes — they're simply paid gross, with no National Insurance charged on them at all, for either the employer or the employee. This makes salary sacrifice (exchanging salary for an equivalent employer pension contribution) one of the most efficient routes available: the sacrificed amount avoids employee NIC, employer NIC, and income tax entirely, rather than just income tax.
06 What happens if you go over the limit
- Exceeding the Annual Allowance (after carry forward) triggers an Annual Allowance Charge on the excess, effectively clawing back the tax relief at your marginal rate
- The charge is reported and paid through Self Assessment, added to your income tax liability for the year
- Relief on personal contributions above 100% of your earnings (or £3,600 if higher) is simply not given at all — this is a different, separate limit from the Annual Allowance Charge
- Once you flexibly access pension benefits beyond the tax-free lump sum, the Money Purchase Annual Allowance of £10,000 applies going forward, sharply limiting further tax-relieved contributions
07 Frequently asked questions
No. The Lifetime Allowance was abolished from April 2024. There's no longer a cap on the total value of your pension savings, though a separate Lump Sum Allowance of £268,275 limits how much can be taken tax-free, and a Lump Sum and Death Benefit Allowance of £1,073,100 applies to certain lump sum payments.
Usually yes, for personal contributions made under relief at source. Your pension provider automatically claims the basic-rate 20% top-up, but any relief above that, for higher or additional-rate taxpayers, generally has to be claimed through Self Assessment or by contacting HMRC directly.
The requirement is pension scheme membership in each carry-forward year, not a minimum income level. However, your relief in the current year is still capped at your current year's relevant UK earnings, so a low-income year doesn't restrict the carry-forward calculation itself, but your overall relievable contribution is still bound by this year's earnings.
No, salary sacrifice contributions count as employer contributions and use up the same £60,000 Annual Allowance as any other pension contribution. The National Insurance saving is a separate benefit on top, not an increase to how much you're allowed to contribute.
The standard Annual Allowance (£60,000) applies to everyone. The Money Purchase Annual Allowance (£10,000) is a separate, lower limit that only kicks in once you've started flexibly drawing income from a defined contribution pension beyond the tax-free lump sum, restricting further tax-relieved contributions from that point onward.
Not sure how much you can contribute this year?
DKAT Accountants calculates your available allowance, including carry forward, and structures contributions — personal or via your company — for maximum tax efficiency.
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