Annual Allowance (pension)

The Annual Allowance is the total amount you (plus your employer) can contribute to all your pensions in a tax year and still get tax relief. For 2026-27 it's £60,000 — raised from £40,000 in April 2023 and unchanged since. Contributions above it get no relief and attract an Annual Allowance charge at your marginal rate.

You can also carry forward unused allowance from the previous three tax years, provided you were a member of a registered pension scheme in each year. That's a useful lever for Ltd directors with lumpy income — a quiet year can fund a big contribution the next.

High earners see the allowance tapered. If your threshold income exceeds £200,000 and your adjusted income exceeds £260,000, the £60,000 allowance reduces by £1 for every £2 above £260,000, down to a floor of £10,000 once adjusted income hits £360,000. Adjusted income includes your employer's pension contributions, which means a generous Ltd director contribution can itself trigger the taper.

There's also a separate Money Purchase Annual Allowance (MPAA) of £10,000, triggered the moment you flexibly access any defined-contribution pension — for example taking an Uncrystallised Funds Pension Lump Sum. Once triggered it's permanent, so think carefully before tapping a pension early if you plan to keep contributing.

For Ltd directors, company pension contributions are also a Corporation Tax deduction — combining Annual Allowance headroom with CT relief makes pension the single most tax-efficient extraction route at higher profit levels.

Related terms

• Salary sacrifice — A formal agreement to swap part of your gross salary for a non-cash benefit — usually pension, EV lease, or cycle-to-work.
• Corporation Tax — Tax on company profits — 19% small profits rate up to £50k, 25% main rate above £250k, with marginal relief between.
• Personal Allowance — The first slice of income you can earn tax-free each year — £12,570, frozen until April 2031.