The tapered annual allowance for pension savings

The annual allowance is the maximum amount that can be saved into a pension before you need to pay tax. 

The standard annual allowance for the 2024/25 tax year is £60,000, but this reduces to an amount between £10,000 and £60,000 if you earn over £200,000. This is called the tapered annual allowance.

You’ll usually have a tapered annual allowance if both are true: 

• Your ‘threshold income’ is over £200,000 – usually all your income minus the amount you pay into a pension. 

• Your ‘adjusted income’ is over £260,000 – all your income plus the amount your employer pays into your pension, or the amount your defined benefit pension has grown by. 

The standard annual allowance of £60,000 reduces by £1 for every £2 of adjusted income you have above £260,000. 

Example: If you earn £250,000 a year in total (including your salary, bonus, savings interest and dividends) and pay £30,000 into a pension, your threshold income is £220,000. 

If your employer also pays £30,000 into your pension, your adjusted income is £280,000. This is £20,000 above £260,000, so your annual allowance reduces by £10,000 to £50,000.

As £60,000 has been paid into your pension, you’ll usually need to pay Income Tax on the £10,000 above your allowance. This is called an annual allowance tax charge.

See What happens if you go over the annual allowance, including how to check if you can use unused allowances from previous tax years.

The minimum tapered annual allowance is £10,000. This happens if your adjusted income is over £360,000. 

If you’ve already taken money from a defined contribution pension (apart from tax-free lump sums), your annual allowance will usually reduce to £10,000 – regardless of your income. This is called the money purchase annual allowance (MPAA).

If you have both a defined contribution and a defined benefit pension, you also qualify for the ‘alternative annual allowance’.  

This means you can continue to get tax relief on:

• money paid into your defined contribution pension, up to the £10,000 MPAA limit, and 
• annual growth of your defined benefit pension, up to your alternative annual allowance.

For the 2024/25 tax year, the alternative annual allowance is £50,000, or £10,000 less than your tapered allowance.

Example: If you pay £10,000 into a defined contribution pension in one tax year, your defined benefit pension can grow by up to £50,000 before you need to pay tax.

If you don’t pay anything into a defined contribution pension, your defined benefit pension can grow by up to £60,000. 

See GOV.UK for help to work out if you’ve gone above your alternative annual allowanceOpens in a new window

To calculate your tapered annual allowance, you need to know your threshold and adjusted income. These calculations can be complicated, especially if you use salary sacrifice. 

For help with the calculations and what to include, see the guide Work out your reduced (tapered) annual allowanceOpens in a new window on GOV.UK.

It’s also worth considering paying for advice from a financial adviser, as they can help make sure everything is accurate. 

You’ll also need to check: 

• how much has been paid into a defined contribution pension by you and your employer
• how much a defined benefit pension has increased by, minus your contributions.

Your pension provider(s) can give you a statement with this information, often by logging in to their online account or contacting them.  

If you go over your annual allowance, you won’t be entitled to tax relief on all your pension savings. This means you’ll need to pay Income Tax on the money above the limit, called an annual allowance tax charge.

You might be able to ‘carry forward’ any unused annual allowance from the last three tax years to reduce or cancel out the charge. 

You can check if you have unused annual allowancesOpens in a new window on GOV.UK. If you’ve already triggered the MPAA, you won’t be able to use the carry forward option.

See our guide about the carry forward rules for more information.

There are two ways to pay the annual allowance tax charge:

1. Ask your pension provider to pay on your behalf. This is called ‘scheme pays’ and means your pension benefits will be reduced.
   
   But your provider doesn’t always have to do this, including if the tax charge is less than £2,000. See who must pay the pensions annual allowance tax chargeOpens in a new window on GOV.UK for the rules.
   
2. Pay the tax charge yourself.

Either way, you need to complete a Self Assessment tax returnOpens in a new window – this calculates how much you need to pay, or tells HMRC your provider has already paid.

See our guide How to fill in a Self Assessment tax return for help with the process.

If you think you might be affected by the tapered annual allowance, consider getting advice from a regulated financial adviser.

An adviser can help you understand:

• how much your tapered annual allowance is 
• if you have any unused annual allowance 
• how to reduce the tax you might need to pay
• how to pay tax charges. 

Our tool can help you find a retirement adviser or see our guide Choosing a financial adviser for more information.