Annual allowance

Tax
Key pension facts

The amount you can contribute to your pension pots in a year before you stop receiving the tax relief the government gives you. It is currently the lower of 100% of your earnings or £40,000 though may be even lower for very higher earners (see tapered annual allowance). It may also be lower if you started drawing benefits from your pension already (see Money Purchase Annual Allowance (MPAA)). If you contribute more than this limit, any further contributions are taxed at your highest income tax rate.

Note that the annual allowance is expressed as a ‘gross’ figure, so an annual allowance of £40,000 actually means you can only make a ‘net contribution’ of £32,000 because the government automatically adds the basic rate tax relief of 25% (£8,000) which brings the total to £40,000.

See also our tax benefits of a pension blog post.

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