The annual allowance for tax relief on pension savings

If you save into your pension before you’re 75, you usually benefit from tax relief. This means the money you’d normally pay in Income Tax goes into your pension instead.

Many people can get tax relief on all their pension savings, but there’s a maximum limit to be aware of. This is called the annual allowance, which resets at the start of each tax year (6 April). 

If the total payments into your pension go over the annual allowance, you won’t get tax relief and might need to pay a tax charge. 

The standard annual allowance is £60,000 for the 2024/25 tax year, covering all your pensions. But what it counts (and the maximum you can pay in to get tax relief) depends on the type of pension you have.  

Here’s how it works – your pension provider(s) can tell you what type you have if you’re not sure. 

For defined contribution pensions, both: 

• your total contributions must be less or equal to the amount you earn and 

• all payments in, including any from you and your employer, must be less than your annual allowance – which is £60,000 for most people. 

Example: If you earn £25,000, you can usually pay up to £25,000 into your pension without paying tax (£20,000 of your money and £5,000 in tax relief). If you did this, your employer could contribute another £35,000.   

If you earn less than £3,600 a year, you can get tax relief on up to £3,600 of pension savings each tax year until you’re 75 (£2,880 of your money and £720 in tax relief). 

For defined benefit pensions (often called final salary or career average schemes), the amount you pay in doesn’t matter as the retirement income you’ll get depends on your salary and how long you’re a member.

If you’re an active member of a defined benefit scheme (this usually means you still work for the employer it’s linked to), the annual allowance counts how much your pension has increased in value during a tax year, rather than the contributions paid in (your contributions still need to be less than, or equal to, the amount you earn).

This is called your pension input amount and your scheme administrator will work this out for you automatically. You’ll be sent a pension savings statement if you go over the annual allowance, but you can ask your administrator for one at any time. 

For most people, the annual allowance is set at £60,000. But it might be lower if:

• your income is over £200,000, as a The tapered annual allowance for tax-free pension savings means your allowance might reduce to an amount between £60,000 and £10,000

• you’ve already taken money from a defined contribution pension (apart from tax-free lump sums), as the fixed £10,000 money purchase annual allowance (MPAA) then applies.

You or your employer might also be able to contribute more than your annual allowance and still get tax relief. This is because you can sometimes use unused allowances from the three previous tax years.  

See our guide about carry forward to check if you qualify (you can’t use carry forward if the MPAA applies to you).

If you go over your annual allowance (including unused allowances from the last three tax years if you’re able to carry forward), you won’t be entitled to tax relief on that money. 

This means you’ll need to pay Income Tax on anything over the allowance, called the annual allowance tax charge.

Your pension provider will send you a statement if you’ve gone over your annual allowance for their scheme. If you have more than one pension, ask each provider for statements to work out your total tax charge.

You can also check if you have an annual allowance tax chargeOpens in a new window using the calculator on GOV.UK.    

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 charge on GOV.UK for the rules.Opens in a new window
2. Pay the tax charge yourself. 

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

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 annual allowance, consider getting advice from a regulated financial adviser. 

An adviser can help you understand:

• how much your annual allowance is
• what you can carry forward
• how to reduce the tax you might need to pay
• how to pay any tax charges.

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