Pension Tax Allowances

The Annual Allowance (AA) represents the maximum amount of pension savings that can be made each tax year without paying extra tax. The standard AA for the 2026/2027 tax year is £60,000.

There are certain situations where you may have a different AA.

It could be higher than £60,000, as you can carry forward any 'unused' AA from up to the three previous tax years.

It could be lower than £60,000. From 6 April 2020:

• If you have taxable earnings over the tax year above £200,000 and your 'adjusted income' (which broadly includes your taxable income and pension savings for the tax year) over the tax year above £260,000. In this situation, your AA may be 'tapered', so reduced below £60,000. The standard AA is reduced by £1 for every £2 that your adjusted earnings for the tax year exceed £260,000, down to a minimum of £10,000 for anyone with adjusted earnings for the tax year of £360,000 or more. (Unused AA for previous years can still be carried forward to 'top up' a tapered AA for the current year.)
• If you are already receiving benefits from a 'money purchase' or 'defined contribution' arrangement and you accessed your benefits 'flexibly' (for example, through flexi-access drawdown or by taking an uncrystallised funds pension lump sum), the 'money purchase annual allowance' (MPAA) of £10,000 will apply to any further pension savings you make to this type of arrangement.

The Lifetime Allowance (LTA) represented the total value of all your personal and workplace pensions (but not State Pension) which you could build up without paying extra tax. When you elected to draw your pension the values of all your pension funds were totalled and checked against the LTA.

With effect from 6 April 2024 the LTA was abolished. It has been replaced by two new limits on the amount of tax-free cash you can take:

The Lump Sum Allowance (LSA) is the standard limit on the amount of tax-free lump sums that can usually be paid during an individual's lifetime. The LSA for the 2026/2027 tax year is £268,275.

The Lump Sum and Death Benefit Allowance (LSDBA) is the standard limit on the total amount of certain tax-free lump sums and lump sum death benefits that can be paid in respect of an individual. The LSDBA for the 2026/2027 tax year is £1,073,100.

Different limits may apply if you have one of HMRC's pension protections.