The pension annual allowance is £60,000 for 2026.
What the allowance is and the headline figures
The annual allowance for the tax year 2026 to 2027 remains set at £60,000, according to HM Revenue & Customs guidance. It means you can put up to £60,000 into tax-relieved pensions in one tax year before the annual allowance charge kicks in.
Other numbers matter to savers, too. HM Revenue & Customs lists the standard individual lump sum allowance at £268,275 and the combined standard lump sum and death benefit allowance at £1,073,100 for 2026–27. The money purchase annual allowance, which applies once a member has flexibly accessed pension funds, sits at £10,000.
You can pay any amount into a registered pension, but tax relief only applies up to the higher of 100% of your UK taxable earnings or £3,600.
How the tapered annual allowance works in 2026
From 6 April 2016 the tapered annual allowance has been used to reduce the basic annual allowance for high earners.
For 2026–27 the threshold income limit is £200,000 and the adjusted income limit is £260,000, per HM Revenue & Customs. Where a member’s adjusted income exceeds the £260,000 threshold their annual allowance can be tapered down but can't fall below a minimum of £10,000 in 2026–27.
That means high earners end up with a much smaller tax-advantaged allowance than people on middle incomes. Any pension savings above the applicable annual allowance are liable to the annual allowance charge, which effectively claws back tax relief on the excess.
Carry forward, money purchase limits and alternatives
If you've unused allowance from the past three tax years, you can use carry forward to increase this year's pension allowance.
Introduced in 2011, carry forward lets eligible members add earlier unused allowance to the current year’s limit and avoid a charge where contributions would otherwise breach the current-year threshold.
The money purchase annual allowance limits further flexible net contributions once a member has drawn pension savings flexibly. It has been £10,000 since 2023–24 and remains at that level in 2026–27. An alternative annual allowance can apply where members have both defined benefit and defined contribution savings and have accessed money purchase benefits. In 2026–27 that alternative figure is shown as £50,000 on HM Revenue & Customs materials — effectively the annual allowance less the money purchase allowance, subject to other reductions.
How rules have changed since A-Day
Twenty years after the major overhaul known as A‑day, the UK’s pension tax regime looks familiar but it has been pared back and reworked many times. Rachel Vahey, head of public policy at AJ Bell, noted the scale of the change brought in by A‑day and how successive governments have altered the original architecture.
"The sweeping reforms introduced on A‑day completely transformed pensions tax," Vahey said. "Soon, however, the reforms began to unwind. Successive governments chipped away at the limits, decimating the strong tax advantages offered by A‑day reforms, and leaving more Brits facing harsh restrictions on how much they could save tax‑efficiently for their later life income."
FTAdviser analysis cited by AJ Bell counts roughly 30 significant tweaks to pension tax rules since A‑day. These include ten changes to the lifetime allowance before that measure was abolished in April 2024, nine changes to the annual allowance itself, six changes affecting the tapered annual allowance, three changes to the money purchase annual allowance and the introduction of carry forward in 2011.
What abolition of the lifetime allowance means now
The lifetime allowance — once a fixed ceiling on the total value of pension benefits that could be taken free of extra tax — was removed in April 2024. When the lifetime allowance was abolished in April 2024, the government introduced two separate limits: one for tax-free cash taken in life and one for benefits paid tax-free on death.
HM Revenue & Customs now publishes the standard individual lump sum and combined lump sum and death benefit figures listed above. Those numbers set the frame for decisions about how much pension to build, how to take benefits and how to plan estate arrangements involving pension assets.
Practical impacts for advisers and savers
Advisers say the frequent rule changes have forced them to alter client strategies more often. The tapered allowance design, the different floors for money purchase rules and the surviving options after abolition of the lifetime allowance create a patchwork that advisers say is more complex for clients to navigate than the pre‑2016 arrangements.
Where someone is close to the adjusted income threshold, small changes in pay, bonuses or employer pension contributions can trigger a large reduction in permitted tax‑relieved savings. That makes planning around bonuses and timing of contributions more important for higher earners.
The existence of carry forward still allows building larger pensions in practice, provided earlier years’ room exists and the member meets the eligibility rules. But carry forward requires careful record‑keeping and calculation. Employers and administrators are being asked to provide clearer reporting to help members see where they stand.
Inheritance considerations and the 2027 change
Rules governing pensions and inheritance tax have been the subject of renewed attention. AJ Bell’s Rachel Vahey warned that April 2027 will bring further change when previously unused pension funds may be considered when calculating inheritance tax — a step that could add complexity for bereaved families and administrators.
"Pension savers are already taking steps to reduce the risk of a potential tax bill," Vahey said. "However, the change will add complexity and create significant administrative challenges for families, who may still be mourning the loss of loved ones."
Those preparing their estates should therefore check both the current lump sum allowances and the planned 2027 changes so that decisions about beneficiary nominations and the timing of withdrawals take account of possible tax consequences.
How to approach planning in 2026
For most people the basic questions remain unchanged. Work out total pension contributions for the year. Check whether carry forward can be used. See whether flexible access rules have already lowered the money purchase allowance. And for higher earners, calculate threshold income and adjusted income carefully to determine whether tapering will apply.
HM Revenue & Customs guidance is the primary source for the headline figures and thresholds. Advisers and employers should ensure payroll and pensions systems supply accurate earnings and contribution figures so members can spot any risk of breaching their allowance before the tax year ends.
Given the number of rule changes over the past two decades, advisers say clients should expect further tinkering. Policy changes since A‑day show how quickly a generous set of rules can be eroded. Careful record keeping and up‑to‑date advice remain the best defence for savers who want to protect tax relief and plan benefits for themselves and their families.
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"The sweeping reforms introduced on A‑day completely transformed pensions tax," said Rachel Vahey, head of public policy at AJ Bell.
This article was created with AI assistance.
