Key takeaways
- The annual allowance is £60,000 for the 2026 to 2027 tax year, and it counts what your employer pays in as well as what you pay in.
- The taper only applies if both tests fail: threshold income above £200,000 and adjusted income above £260,000. Adjusted income adds employer contributions back in.
- Above £260,000 the allowance falls by £1 for every £2 of adjusted income, down to a floor of £10,000, which is reached at £360,000.
- Carry forward reaches back 3 tax years, earliest year first, and the current year's allowance is always spent before any of it.
- Mandatory scheme pays is tested against the £60,000 standard allowance, not your tapered one, so a £30,000 charge can be one no scheme has to pay.
£60,000 for 2026 to 2027, and your employer's money counts too
How much can you put into a pension this tax year before you're taxed on it? The starting answer is £60,000. GOV.UK puts it plainly: "You'll only pay tax if you go above the annual allowance. This is £60,000 this tax year." HMRC's rates page carries the same £60,000 for 2026 to 2027, 2025 to 2026, 2024 to 2025 and 2023 to 2024. It was £40,000 from 2016 to 2017 through 2022 to 2023.
The part people miss is whose money it counts. HMRC's Pensions Tax Manual is explicit that the allowance covers "pension savings that individuals make plus any made by someone else on behalf of the individual - for example, their employer." In a defined contribution scheme the tested figure is the total contribution. In a defined benefit scheme it's the increase in the value of your promised benefits over the year, not the contributions paid.
So the number HMRC tests isn't the one on your payslip. A £90,000 pension input in a year is a big allocation of one year's earnings by any standard, and none of it shows up as a single line anywhere except your scheme's pension savings statement.
Three rules then interact: the standard allowance, the taper for high earners, and carry forward. Each is simple. Together they produce results that surprise people, and the surprises are asymmetric — the taper catches you quietly, and carry forward rescues you only if you already had headroom.
The taper needs both tests to fail, and threshold income is the gate
The tapered annual allowance has applied since the 2016 to 2017 tax year. For 2026 to 2027 it bites only if two things are true at once. HMRC's manual states the test: "their Threshold Income is more than £200,000, and their Adjusted income is more than £260,000".
The order matters. GOV.UK's guidance is blunt about it: your allowance "will not be reduced if your threshold income for the current tax year is £200,000 or less, no matter what your adjusted income is." Threshold income is the gate. Fail to clear it and the taper can't touch you, however large your employer's contribution.
Threshold income starts from your net income for the year — earnings, self-employment profits, taxable savings interest, dividends, rent. You then deduct the gross amount of any personal contributions paid under relief at source, the mechanism most personal pensions use. Employer contributions are not in this figure at all.
Then comes the trap. Threshold income adds back any employment income you gave up "for the operation of a 'relevant salary sacrifice arrangement' made after 8 July 2015". A sacrifice arrangement set up after that date doesn't reduce your threshold income. It's counted as though you'd never sacrificed it. Arrangements predating 8 July 2015 are outside that rule, which is why the date is worth checking rather than assuming. If you want the mechanics of relief at source versus net pay, our guide to how pension tax relief is actually given sets out both.
Adjusted income adds the employer's contribution back in
Adjusted income is the figure that catches people, and it does so because it deliberately includes money you never saw.
It starts from the same net income. It adds back member contributions paid through net pay, because those already reduced your taxable pay. Then it adds, in HMRC's words, "an amount equal to the individual's total pension input amount for the year minus the amount of member contributions paid in the tax year". That residual is your employer's contribution. For most people the shortcut is simple: gross salary plus employer pension contributions, plus other taxable income.
The practical effect is that a pay rise and a generous employer scheme can push you over £260,000 without your take-home pay going anywhere near it. Someone on £250,000 with a £70,000 employer contribution has adjusted income of £320,000. Their bank statements never show £320,000.
Above the threshold the reduction is mechanical. HMRC: "An individual's annual allowance will be reduced by £1 for every £2 their Adjusted income is above £260,000". Rounding runs in your favour by a penny or two — a reduction that isn't a whole number "is rounded down to the nearest £1". And there's a floor: "For 2023-24 onwards the tapered annual allowance cannot be reduced to be less than £10,000."
The chart above plots that schedule for 2026 to 2027. The allowance falls in a straight line from £60,000 at £260,000 of adjusted income to £10,000 at £360,000, and it's flat either side.
These figures have moved repeatedly, so a number remembered from a few years ago is probably wrong. For 2016 to 2017 through 2019 to 2020 the tests were threshold income above £110,000 and adjusted income above £150,000. For 2020 to 2021 through 2022 to 2023 they were £200,000 and £240,000, with the floor cut to £4,000. HMRC also runs an anti-avoidance rule: arrangements whose main purpose is to shrink your adjusted or threshold income in one year, redressed by an increase in another, are simply disregarded.
Carry forward goes back 3 years, and it uses the allowance you actually had
Carry forward is the release valve. GOV.UK: "You can carry forward unused annual allowances from the 3 previous tax years. You do not need to report this to HMRC." Carry forward also requires membership of a registered pension scheme in each year you're carrying from, though you needn't have contributed in it.
Two ordering rules govern how the pool gets spent, and they're not optional. The manual calls it "a strict order". For 2023 to 2024 onwards: "The annual allowance for the current tax year of £60,000 is used first. The unused annual allowance from the previous tax years is then used, beginning with available unused annual allowance from the earliest tax year first."
Earliest-first matters because unused allowance expires after three years. Spending the oldest slice first preserves the newer slices for next year. You don't get to choose; the legislation does it for you, and it happens to choose well.
The rule that undoes people is what "unused" means in a year you were tapered. It's measured against the allowance you actually had, not the standard one. HMRC works the example: if the carry-forward year is 2017 to 2018 with a standard allowance of £40,000 and an input of £14,000, then someone on the standard allowance carries forward £26,000, while someone with a £35,000 tapered allowance carries forward only "£21,000 (£35,000 tapered AA - £14,000)". Being tapered in the past shrinks the rescue available in the present.
There's a second limit that carry forward doesn't touch. Tax relief on your own contributions is capped separately, at "the higher of: 100% of your UK taxable earnings £3,600". Carry forward might hand you £150,000 of allowance headroom, say. It still can't make a £150,000 personal contribution relievable on £80,000 of earnings. Employer contributions aren't bound by that cap, which is one reason large one-off contributions tend to come from the employer side.
A worked example: £320,000 of adjusted income and £4,500 of tax
Take Naomi, in 2026 to 2027. Salary £250,000, no other income. She pays £20,000 into her workplace scheme through net pay. Her employer pays £70,000, funded from a bonus. She has one scheme and no salary sacrifice.
Step one, threshold income. Her taxable pay is £230,000, because net pay contributions come out before tax. Nothing to add for sacrifice, nothing to deduct for relief at source. Threshold income is £230,000, which is above £200,000. The gate is open.
Step two, adjusted income. Start at £230,000. Add back her £20,000 of net pay contributions. Add her employer's £70,000. Adjusted income is £320,000 — the same as salary plus employer contribution.
Step three, the taper. She's £60,000 above £260,000. Halve that: the reduction is £30,000. Her allowance for the year is £60,000 minus £30,000, so £30,000.
Step four, her input. £20,000 plus £70,000 is £90,000, tested against £30,000. On its own that's £60,000 of excess.
Step five, carry forward. Say her inputs were £50,000 in 2023 to 2024 against a £60,000 allowance, £40,000 in 2024 to 2025 against £60,000, and £30,000 in 2025 to 2026 against a tapered £50,000. That's £10,000, £20,000 and £20,000 unused: £50,000 in the pool.
Step six, the order. Her £30,000 current allowance goes first, then £10,000 from 2023 to 2024, then £20,000 from 2024 to 2025, then £20,000 from 2025 to 2026. Available allowance is £80,000 against an input of £90,000. She's £10,000 over, and the pool is empty for next year.
Notice how much work carry forward did. Without it she'd have £60,000 of excess. With it, £10,000. And notice what shrank it: the year she was already tapered contributed £20,000 rather than the £30,000 a standard allowance would have left.
The charge has no rate of its own: it lands at your marginal rate
The annual allowance charge has no rate of its own. HMRC: it "can be in whole or in part at 45 per cent, 40 per cent or 20 per cent, depending on the individual's taxable income and the amount of their pension savings that are in excess of the annual allowance." You stack the excess on top of your taxable income and tax it at whatever bands it lands in.
Naomi's taxable income for 2026 to 2027 is £230,000. The personal allowance of £12,570 is long gone — it's zero once income reaches £125,140 — and everything above £125,140 is taxed at 45%. Her £10,000 of excess sits entirely in that band. The charge is £4,500.
That's the design. The charge "recoups, in a broad way, the amount of tax relief given" on the excess. It isn't a fine. The relief is being handed back at the rate it was given.
Scottish taxpayers work the same steps with Scottish rates and thresholds, which HMRC notes can make the charge comprise up to four rates rather than three.
Scheme pays is tested against £60,000, not against your tapered allowance
You can require your scheme to pay the charge out of your pot, in exchange for a reduction in your benefits. Two conditions have to be met. Your charge for the year has to exceed £2,000, and your pension input in that scheme has to exceed the standard annual allowance — "currently £60,000" on GOV.UK's wording.
That second condition repays a second reading, because HMRC states the consequence directly: "the individual's pension savings under the scheme must be more than the standard annual allowance", and "not their reduced annual allowance". The taper reduces what you're allowed. It does not reduce the bar for making the scheme pay.
Naomi clears both tests. Her charge of £4,500 is over £2,000, and her £90,000 input in a single scheme is over £60,000. Change one detail and she doesn't. Split the same £90,000 across two schemes at £50,000 and £40,000, and neither exceeds £60,000. Same income, same taper, same £4,500 charge — and no scheme is obliged to pay any of it.
The mismatch is sharpest at the floor. Someone with a £10,000 tapered allowance and a £30,000 input has £20,000 of excess and a substantial charge, but £30,000 is nowhere near £60,000, so mandatory scheme pays is unavailable. A scheme may still pay voluntarily. If it does, it has no joint liability, and the liability stays with the member.
The deadline is 31 July in the year after the following tax year — for a 2022 to 2023 charge, 31 July 2024. It's brought forward if you're taking all your benefits from that scheme, and extended in narrow cases where a corrected savings statement arrives late. You also report the charge on a Self Assessment return even when the scheme pays it.
The objection: 30,440 people, and a taper doing roughly what it was built to do
The strongest case against treating this as a widespread problem is that it isn't one. HMRC's private pension statistics, published 30 July 2026, record that "in 2024 to 2025, 30,440 individuals reported pension contributions exceeding their personalised AA through SA", up from 24,950 the year before. The value of those excess contributions was £672 million. Against £15.9 billion of individual contributions into personal pensions alone in the same year, this is a small, high-income group.
Critics of the taper point at complexity, and they're right that it's complex. The counter-argument they rarely price is the alternative: a flat allowance low enough to restrict relief at the top would apply to every saver, not to the 30,440 who reported a breach. The taper leaves £60,000 intact for everyone below £200,000 of threshold income.
The data also has a wrinkle worth refereeing, because two of HMRC's own series point opposite ways for the same year. Self Assessment reports rose 22% between 2023 to 2024 and 2024 to 2025. Charges reported by schemes through Accounting for Tax returns fell 69% over the same period, from 49,790 to 15,250, with the value down from £353 million to £164 million. That divergence is unlikely to be a fall in breaches. HMRC flags reporting delays in public sector schemes, the McCloud remedy, and a scheme pays reporting deadline of February 2027, and warns that "revisions may be particularly substantial for the 2024 to 2025 AfT figures". The Self Assessment series is the better read on how many individuals are affected.
What these figures cannot tell you
Several real limitations sit behind everything above. The thresholds are the 2026 to 2027 ones and nothing more: they changed in 2020 to 2021 and again in 2023 to 2024, and the minimum allowance has been £10,000, then £4,000, then £10,000 again. Any figure carried over from an older article is a different rule.
Naomi's arithmetic is arithmetic, not a forecast. It assumes one scheme, no other income, no salary sacrifice, no money purchase annual allowance from having flexibly accessed a pot, and English or Welsh rates. Change any one and the numbers change.
Defined benefit inputs are the biggest gap. The input isn't your contribution — it's the closing value of your promised pension minus the opening value, with the opening value uprated by September's Consumer Prices Index. A promotion can produce an input several times your contributions, and you can't compute it from a payslip. Only the scheme can tell you, and it may tell you late.
Finally, the statistics count reported breaches. People who exceeded the allowance and never reported it aren't in them. A tracker such as LedgerTouch shows the contributions leaving your account; only the scheme's pension savings statement shows the input amount HMRC actually tests.
What would change the answer
If the thresholds were uprated. Threshold and adjusted income have been frozen at £200,000 and £260,000 since 2023 to 2024. Frozen limits and rising pay mean the tapered population grows every year without a single rule changing. That's the mechanism behind the jump from 24,950 to 30,440 reported cases, and it runs in one direction until someone changes the numbers.
If the scheme pays test moved to the tapered allowance. That one change would remove the sharpest edge in the system — the charge that exists but can't be paid from the pot that caused it. It's a drafting choice rather than a principle, and it has sat unchanged since the taper began in 2016 to 2017.
If your income profile is lumpy. The rules are annual, so a bonus year, a property sale or a redundancy payment can put a single year over £260,000 and leave the three either side well below it. Carry forward is built for exactly that shape, which is why the ordering rules repay a look before the money moves rather than after.
The number to watch isn't the £60,000. It's your adjusted income, and the employer contribution inside it that no payslip ever shows you. Our guides to how UK dividend and savings income stack into marginal rates and to the inheritance tax residence band taper cover the two other places where a £1-for-£2 withdrawal produces a marginal rate nobody publishes.