Pension annual allowance and carry forward, explained

The annual allowance is the amount of pension saving (member, employer and any third-party input together) that can be made each year before an annual allowance charge arises — £60,000 as standard for 2026/27. Tax relief on the member's own contributions is limited separately, to their relevant UK earnings, or £3,600 if higher in a relief-at-source scheme. The taper cuts it for high earners, down to a £10,000 floor. Once a defined-contribution pot is flexibly accessed, the £10,000 money purchase annual allowance normally applies to money-purchase inputs and changes the test for other pension inputs. Unused allowance from the previous three years can be carried forward. Save above the allowance you have and the excess is taxed at your marginal rate.

The standard allowance and the input amount

For defined-contribution pensions the input amount is simply the contributions paid (by member and employer). For defined-benefit pensions it is not the contributions: it is the growth in the capitalised value of the promised pension over the year. Capital value is 16× the annual pension (PTM053301, Step 2: “multiply the annual amount of that pension by 16”) plus any separate automatic lump sum at face value — that lump is already a capital amount, so it is not 16×-multiplied — and the opening value is revalued by the prior-September CPI before it is subtracted (PTM053301; FA 2004 s.235). The whole position runs in the Pension Annual Allowance calculator; the DB measure is worked in DB pension input amount & CPI revaluation (or the DB PIA calculator).

The taper for high earners

Two income tests gate the taper: it applies only if threshold income exceeds £200,000 and adjusted income exceeds £260,000. Above the adjusted-income gate the allowance falls by £1 for every £2, down to a £10,000 floor (reached at £360,000 of adjusted income).

More cases — the floor, and the taper meeting carry forward — are in Tapered annual allowance: worked examples and the taper explainer; the Tapered Annual Allowance calculator applies the right year’s thresholds. (PTM057100.)

The money purchase annual allowance (MPAA)

Flexibly accessing a defined-contribution pension (drawdown income or an UFPLS — not a PCLS alone) triggers the £10,000 MPAA. When post-trigger DC saving exceeds that cap, compare the default and alternative chargeable amounts and tax the greater amount. If the cap is not exceeded, use the ordinary total-input test with any taper and carry-forward. Carry forward survives the trigger but can never lift the £10,000 cap.

The two-part test is worked in Exceeding the money purchase annual allowance and the MPAA explainer; the MPAA calculator runs it. (PTM056510.)

Carry forward

You can use unused allowance from the three previous tax years, provided you were a pension-scheme member in those years. The current year’s allowance is spent first, then prior years oldest-first — and each prior year’s unused amount is measured against that year’s own allowance (tapered if it applied then), not the current £60,000. That last point is the most common carry-forward error.

See Carry-forward of unused annual allowance and Taper and carry forward together; the Pension Carry Forward calculator shows the oldest-first working. (PTM055100 / 055200.)

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