pensions & retirement

Pension contribution limits and rules

Learn more about how much you can contribute to your pensions, and how you could take advantage of unused allowance from previous years.

Annual allowance on contributions

The annual allowance is the total amount of money you can pay into your pension(s) and receive tax relief. 

You can pay as much as 100% of your gross earnings, up to a maximum of £40,000, into your pension. 

For example, if you wanted to contribute £40,000, you would only pay £32,000. The other 20% (£8,000) is topped up by the government. 

If you earn less than £3,600 a year

Anyone with annual earnings below  £3,600 can still contribute up to £3,600 to their pension each year (£2,880 of their own money and 20% (£720) topped up by the government).

If you earn over £240,000

If your annual adjusted income is over £240,000, your annual allowance for pension contributions will be limited. This is known as the Tapered Annual Allowance.

For every £2 over £240,000 you earn, your allowance is reduced by £1. There is a maximum reduction to £4,000 for those earning £312,000 or more. 

Annual Adjusted Income Pension contribution limit
£240,000 £40,000
£260,000 £30,000
£280,000 £20,000
£300,000 £10,000
£312,000+ £4,000


If you start taking pension income

Your annual allowance will be reduced to £4,000 if you start withdrawing a regular income from a defined contribution pension scheme (this includes SIPPs, private pensions and many workplace pensions). This is known as triggering the Money Purchase Annual Allowance (MPAA).

Your annual allowance will not be reduced if you just take your tax-free lump sum (up to 25% of your pension). You will retain the standard annual allowance of 100% of your gross earnings, subject to a maximum of £40,000 gross per annum.

The MPAA does not apply if you draw an income from a salary-based defined benefit pension scheme. 

Pension carry-forward rule

In certain circumstances, unused annual allowance from the previous three years can be carried forward to this year. If you qualify for carry forward, you could contribute more than £40,000 to your pension in one year. 

To qualify you must have: 

  • Been a member of a pension scheme for the last three years. 
  • Contributed less than £40,000 in at least one of those years.
  • Used up all your allowance in the current tax year. 

Have earnings of at least the level of the total contribution you are looking to make in the year of payment 

Even with carry forward, you cannot contribute more in a year than your total earnings for that year.

For example: Sarah  has contributed £30,000 in each of the previous three years to her personal pension scheme. She could carry forward an extra £10,000 allowance from each year. That means including the £40,000 standard annual allowance for the current tax year along with the £30,000 carry forward, she could invest £70,000 in the current tax year. 

If her earnings in the current year were lower than £70,000, she would be limited to a maximum contribution equivalent to her salary. 

Pension overpayments 

If you pay in more than your annual allowance, you will not receive tax relief on the excess contributions (unless you qualify for carry forward). You may also incur an annual allowance charge which will be levied by HMRC. 

How can I top up my pension?

The two main ways to top up your workplace or personal pension are to increase your regular contributions or pay in a lump sum. 

You can do this at any time, but remember if you exceed your annual allowance you may have to pay additional tax.

By topping up your pension you will benefit from compounding – in other words, the earlier you contribute to your pension, the more time it will have to grow.

State pension

You can top up your state pension by paying voluntary national insurance (NI) contributions.

The amount of state pension you receive is determined by the number of years you have paid NI. To get a full state pension of £175.20 a week, you must have paid 35 years’ worth of NI contributions. If you have made NI contributions in fewer than 35 years, your state pension is reduced proportionally. 

For example: a state pension based on 30 years NI contributions is calculated by dividing £175.20 by 35, and then multiplying it 30. This would provide a weekly pension of £150.17. 

You need to have paid NI contributions in for at least 10 years to get any at all. 

The government has an online service for checking your state pension  if you wish to find out more. 

Pension contributions FAQs

Experts recommend investing in your pension as early as possible, and to pay in as much as you can reasonably afford to. 

You can pay a lump sum into a pension at any time. However, you cannot pay in more than your annual allowance in one lump sum and still receive tax benefits, unless you are making contributions utilising any carry forward relief that you may have

For example: if you were investing £5,000 a year into your pension through employer and personal contributions from your salary, you could add another £35,000 as a lump sum. 

You can still pay into a pension if you are drawing pension benefits. How much you can pay in depends on the pension scheme you are drawing from and what type of drawdown you are receiving benefits from. 

Before retirement, you can pay 100% of your gross earnings, up to £40,000, into your pension. Taking an income from a salary-based defined benefit pension does not affect how much you can pay into a personal pension. 

If you are in capped drawdown, you still retain the ability to contribute up to 100% of your gross earnings up to a maximum of £40,000 gross per annum.

Your annual allowance is only reduced if you trigger the Money Purchase Annual Allowance (MPAA) which is applicable to individuals receiving benefits in flexi access drawdown. In that case, you can still pay £4,000 gross per annum  into your pensions.

The MPAA is triggered when you take a  taxable income pension payment from a defined contribution pension scheme . It is not triggered by only taking your tax-free lump sum (up to 25%).

You can only pay more than £40,000 a year into a pension and still receive tax benefits if: 

  • Your annual earnings are above £40,000
  • You qualify for carry forward

There are specific rules whether you u can qualify for carry forward and you can find out more my following this link.  

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