Annual Allowance (AA)

What is the most you can pay into a pension without attracting a tax charge?

For 2023/2024 the allowance is set at £60,000 during a 'Pension Input Period' (PIP). A PIP is the timeline over which the annual allowance is measured. All PIPs are aligned to the tax year, for example, 6 April to 5 April.

Total pension input is the total contribution or accrual of benefits* that will be tested against the £60,000.

If you start taking money from a defined contribution pension scheme, the total amount you can pay into another pension and still get tax relief comes down to £10,000 per tax year. This is called the Money Purchase Annual Allowance (MPAA).

If you decide to increase your contributions to one pension scheme while still receiving an income from another pension scheme, please make sure that you won’t exceed the Annual Allowance or the Money Purchase Annual Allowance. If you do, you may face a tax charge.

What’s included in the calculation?

  • relievable pension contributions (see below) paid by you or someone else on your behalf
  • any contributions in excess of your UK relevant earnings which do not get tax relief

'Relievable' means including basic rate tax relief paid, for example, gross employer contributions and gross employee contributions.

‘Relevant earnings’ includes employment income, earnings from an overseas Crown employment, subject to UK Tax, income received for carrying out your trade, profession or from a vocation. The following income is excluded: dividend income, interest from a bank or building society account, rental income from a buy to let property.

If you contribute £500 per month to your workplace pension and your employer contributes another £500 per month, this equates to a total pension input of £12,000 (£500 + £500) x 12 for the pension input period.

Your Annual Allowance would have £60,000 - £12,000 = £48,000 remaining, with no additional tax charge to pay.

What’s excluded from the calculation?

  • your contributions, or those paid in by someone other than your employer when you reach age 75
  • investment returns

There is some good news in certain circumstances if you find you have some additional cash and want to pay in more than £60,000 in a tax year. Read our article Making the most of your annual allowance.

*Accrual of benefits is a term linked to active members of defined benefit schemes and cash balance schemes. The total pension input is the increase in the capital value of an individual’s rights over the pension input period.

If you are unsure or believe your contributions will take you over the annual allowance, you may want to consider consulting with a regulated financial adviser. You can locate an adviser on the MoneyHelper website.


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