Restrictions on Pension Contributions

Pension contributions can reduce your tax liability, but restrictions on contributions exist, especially for high-income earners.

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You are more than welcome to discuss your pension requirements with Peter or another of our pension advisers, at a free introductory meeting.

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Receiving tax relief on pension contributions

The government rewards people for contributing to their pension – and their future finances – by granting tax relief on pension contributions. Some tax you would normally owe HMRC will be redirected to your pension.

You’ll receive 20%, 40% or 45% tax relief depending on your taxpayer status. For example, adding £100 to your pension will only cost a basic rate taxpayer (20%) £80 and the government will top up the remaining £20 (the rules are different in Scotland).

The amount you contribute to your pension can benefit from tax relief,  providing it doesn’t exceed 100% of your relevant UK earnings (or £3,600 if higher) each tax year.

Separately, there is a limit on total tax-efficient pension contributions in a tax year called the annual allowance. This applies to the total of all contributions made by you, your employer, and any third parties. If the annual allowance is exceeded, a tax charge known as the annual allowance charge will apply to the excess amount — but personal contributions up to 100% of earnings can still receive tax relief, even if total contributions exceed the annual allowance.

What is the annual allowance?

The pension annual allowance is a limit on total tax-efficient pension funding – it takes into account all contributions to defined contribution pensions (employer and employee) as well as the amount of benefits built up within defined benefit pensions. The current annual allowance is set at £60,000* (your State Pension isn’t included).

There is a reduced annual allowance for high-income individuals. We explain this further below.

We can offer tax-efficient planning so you can minimise taxes on your retirement income and investments.

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What happens if I exceed the allowance?

If you exceed the £60,000* annual allowance, you will be subject to a tax charge called an annual allowance charge. There are strategies to mitigate this charge using unused portions of annual allowance from the three previous tax years if eligible.

The Tapered Annual Allowance (TAA)?

The Tapered Annual Allowance (TAA) is a reduced annual allowance for high-income individuals. If affected, their annual allowance will be reduced by £1 for every £2 that their adjusted income exceeds £260,000, to a minimum tapered allowance of £10,000.

*Tax year 2025/2026