The short version: The Pension Annual Allowance is the maximum you can contribute to your pension each year while still getting tax relief. Go over it and you’ll face a tax charge.
How much is it?
Check gov.uk for the current figure as it changes. There’s also a lower limit for high earners (the tapered annual allowance) and people who’ve already started drawing their pension (the money purchase annual allowance).
Does it include employer contributions?
Yes. Your contributions, your employer’s contributions, and any tax relief all count towards the limit.
What if you go over?
You’ll pay an Annual Allowance Charge on the excess. It’s essentially added to your income and taxed at your marginal rate. Not ideal.
Can you carry forward unused allowance?
Yes. If you didn’t use your full allowance in the previous three years, you can carry it forward and use it now. You need to have been a member of a pension scheme in those years.
Thinking about making large pension contributions? Let’s check you won’t breach the allowance.
