A bonus, a successful year in business or the approach of retirement can all prompt the same thought: perhaps now is the time to put more into your pension.

Before making a substantial contribution, however, it is important to establish how much allowance you have available. The standard annual allowance is £60,000 for the 2026/27 tax year, but your individual allowance could be significantly different.

In the first article in this series, How pension tax relief could give your contribution a 25% or nearly 67% uplift, we explained how tax relief can increase the value of a pension contribution and why some people need to claim additional relief.

This article considers the limits surrounding that relief and how pension contributions can fit into a wider financial plan.

What counts towards the pension annual allowance?

The annual allowance measures pension saving across all your pension schemes.

For defined contribution pensions, this generally includes:

• personal contributions, including the tax relief added by the pension provider;
• employer contributions; and
• contributions made by another person on your behalf.

For defined benefit schemes, the calculation is based on the increase in the value of your pension benefits over the relevant period, rather than simply the amount deducted from your salary.

For example, £40,000 of gross personal contributions and £25,000 of employer contributions would result in total pension saving of £65,000. This exceeds the standard £60,000 annual allowance, although available carry forward could potentially cover the excess.

Looking only at your personal payments would therefore miss an important part of the calculation.

The annual allowance is also separate from the earnings limit that applies to tax relief on personal contributions. Having a £60,000 annual allowance does not automatically mean that you can personally contribute £60,000 and receive tax relief if your relevant UK earnings are lower.

Employer contributions are not restricted by your relevant UK earnings in the same way, although they are still considered when assessing your annual allowance and are subject to other tax rules.

When can higher earnings reduce your annual allowance?

The tapered annual allowance can apply in 2026/27 when both:

• your threshold income exceeds £200,000; and
• your adjusted income exceeds £260,000.

These are technical calculations that take account of more than salary. Employer pension contributions can be particularly important when calculating adjusted income.

Where the taper applies, the annual allowance is reduced by £1 for every £2 of adjusted income above £260,000, down to a minimum allowance of £10,000.

For example, someone with adjusted income of £300,000 and threshold income above £200,000 would normally have an annual allowance of £40,000 before considering carry forward.

At an adjusted income of £360,000 or more, the minimum £10,000 annual allowance can apply.

This deserves particular attention if you receive variable bonuses, substantial employer pension contributions or income from several sources. A contribution that fitted comfortably within your allowance last year may require a fresh calculation this year.

Could unused annual allowance help you contribute more?

Carry forward may allow you to use unused annual allowance from the previous three tax years after using your allowance for the current year.

For 2026/27, the relevant previous tax years are:

• 2023/24;
• 2024/25; and
• 2025/26.

The oldest available allowance is normally used first.

You generally need to have been a member of a registered pension scheme during the earlier tax year from which you want to carry forward unused allowance.

The amount available will depend on the annual allowance that applied to you in that year and the pension saving already made, including employer contributions. If the tapered annual allowance applied in an earlier year, you cannot simply assume that the full standard allowance was available.

Carry forward can be useful for someone with irregular earnings who wants to make a larger pension contribution. However, it does not increase the current year’s relevant UK earnings limit for tax relief on personal contributions.

For example, proceeds from a business sale may provide cash to invest without necessarily creating relevant UK earnings of the same amount. Having money available to contribute and qualifying for tax relief are therefore separate considerations.

Why can taking pension income change the rules?

Certain methods of flexibly accessing taxable benefits from a defined contribution pension trigger the Money Purchase Annual Allowance, commonly known as the MPAA.

In 2026/27, the MPAA restricts relevant defined contribution pension saving to £10,000 a year before an annual allowance tax charge may arise. This total includes employer contributions.

Unused annual allowance from previous tax years cannot be used to increase the MPAA.

This can be particularly important if you take pension income while continuing to work or return to employment later. Not every type of pension withdrawal triggers the MPAA, so it is important to check the proposed method of access before taking benefits if you intend to continue contributing.

What if your income exceeds £100,000?

Pension contributions may also reduce your adjusted net income. This is a different calculation from the adjusted income used to assess the tapered annual allowance.

The standard £12,570 Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000. It is fully withdrawn when adjusted net income reaches £125,140.

An eligible pension contribution may reduce adjusted net income and restore some or all of the Personal Allowance, while also qualifying for pension tax relief.

The combined benefit can be valuable, but the outcome will depend on your income, contribution and wider tax position. Any contribution should also be considered alongside affordability, your other financial priorities and the length of time the money will remain in the pension.

How do pensions fit into longer-term tax planning?

The Lifetime Allowance was abolished from 6 April 2024, but limits on certain tax-free lump sums remain.

In 2026/27, the standard lump sum allowance is £268,275, while the standard lump sum and death benefit allowance is £1,073,100. Individual protections and transitional arrangements can result in different allowances.

Under the changes scheduled to take effect from 6 April 2027, most unused pension funds and pension death benefits will be brought within the scope of Inheritance Tax.

Pensions can still provide valuable retirement benefits, but decisions about contributions, withdrawals and passing wealth to family need to take account of these changing rules.

What should you check before making a large pension contribution?

Before committing a substantial amount to your pension, consider the following questions:

• What annual allowance applies to you?
• Could the tapered annual allowance reduce it?
• How much has already been contributed by you and your employer?
• Do you have unused allowance available through carry forward?
• Do you have enough relevant UK earnings to receive tax relief on a personal contribution?
• Have you triggered the Money Purchase Annual Allowance?
• How could the contribution affect your adjusted net income and Personal Allowance?
• Will you still have sufficient accessible savings for your shorter-term needs?

At Alexandra’s Financial Management, we can help you consider these questions alongside your retirement plans and wider financial position. Where appropriate, we can also work with your accountant or tax adviser.

Please get in touch if you would like to review your pension saving.

This article is for general information only and does not constitute financial or tax advice. Tax treatment depends on individual circumstances and may be subject to change.

A pension is a long-term investment and is not normally accessible until age 55, rising to age 57 from 6 April 2028, unless an exemption applies.

The value of investments and any income from them can fall as well as rise, and you may get back less than you invested.

Sources and further information

Information checked on 7 October 2026. Figures relate to the 2026/27 tax year where stated. The examples are illustrative and do not constitute individual advice.

HMRC: Annual allowance
https://www.gov.uk/tax-on-your-private-pension/annual-allowance

HMRC: Tapered annual allowance
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm057100

HMRC: Unused annual allowances and carry forward
https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings

HMRC: Pension scheme rates and lump sum allowances
https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

HMRC: Personal Allowance and Income Tax rates
https://www.gov.uk/income-tax-rates

HMRC: Inheritance Tax on pensions technical note
https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note/technical-note-inheritance-tax-on-pensions