Annual and Lifetime Allowances

The money you pay into your pension arrangements usually gets tax relief. 

However, there are limits on how much you can save towards your pension before tax will be charged on any excess.
 
 
Annual Allowance = £60,000
The Annual Allowance is the total amount you can pay into all of your pension arrangements each tax year before tax will be charged. Each £1 of annual defined benefit pension built up is treated as £16 for this purpose.

Going over the Annual Allowance

You’ll get a statement from your pension provider telling you if you go above the Annual Allowance and the amount of any excess that will enable you to complete your tax return.

You can carry forward any unused Annual Allowance for up to three years.  

 
Money Purchase Annual Allowance = £10,000
This is the total amount you can pay into any defined contribution pension arrangements (such as the UPP or and AVCs) each tax year before tax will be charged.

The Money Purchase Annual Allowance only comes into effect if you have already taken some of your defined contribution savings as cash or a short-term annuity from a flexi-access drawdown fund, cash from a pension pot (‘uncrystallised funds pension lump sums’) or if you have taken more than the limit from a capped drawdown fund.  

 
Tapered Annual Allowance = between £10,000 and £60,000
Your Annual Allowance will only be tapered if you are a high earner and your ‘adjusted income’ (your taxable income plus your Pension Input Amount) is £260,000 or more and your taxable income is over £200,000.

For every £2 of adjusted income over £260,000, your Annual Allowance reduces by £1 (down to a possible minimum of £10,000).

If your total taxable income is over £200,000, you should check if the Tapered Annual Allowance applies to you.


Lifetime Allowance (LTA)
The LTA was abolished from 6 April 2024 and new Lump Sum Allowances were introduced. Historically, the LTA was the maximum amount you could build up in all of your registered pension savings throughout your working life before you had to pay additional tax.

With the abolition of the LTA there is no limit on the amount of pension savings you can build up. However, lump sum limits or allowances have been introduced. This includes the Lump Sum Allowance (LSA) which for most people limits the tax-free cash or lump sum you can receive from all your pensions to £268,275 (the amount being the same as 25% of the LTA at abolition)

If you have an LTA protection, you may have a higher allowance than set out above.

For further details please see the other allowance details below or visit gov.uk/tax-on-your-private-pension

It is your responsibility to monitor how much Annual and Lifetime Allowance you have used and report any excess to His Majesty’s Revenue & Customs (HMRC) using a self-assessment tax return form.