How Much Can I Pay Into My Pension? Contribution Limits Explained

In the UK, there are limits on how much you can contribute to your pension each year while still benefiting from tax relief. These limits are known as the Annual Allowance and the Lifetime Allowance (now abolished in 2024).

Understanding these limits can help you maximise your pension savings while ensuring you do not exceed tax-free contribution thresholds.

How Much Can I Contribute to My Pension?

You can contribute as much as you want to your pension, but you will only receive tax relief on contributions up to:

• 100% of your earnings or £60,000 per year (whichever is lower).

• If you have no earnings, you can contribute up to £3,600 per year (including tax relief).

This £60,000 Annual Allowance applies across all pensions, including:

• Workplace pensions (auto-enrolment or employer schemes).

• Personal pensions (including SIPPs and stakeholder pensions).

• Additional voluntary contributions (AVCs).

If you earn over £260,000 per year, your Annual Allowance may be reduced under the Tapered Annual Allowance.

How Does Pension Tax Relief Work?

When you pay into a pension, you receive tax relief, meaning the government tops up your contributions.

For example:

• If you contribute £800, the government adds £200, making it £1,000 in your pension.

• Higher-rate taxpayers (40%) and additional-rate taxpayers (45%) can claim extra relief through Self-Assessment.

What is the Tapered Annual Allowance?

If your total income (including pension contributions) exceeds £260,000, your Annual Allowance is reduced.

• For every £2 above £260,000, your Annual Allowance reduces by £1.

• The minimum allowance is £10,000 (for those earning £360,000+).

If you are a high earner, a financial adviser can help optimise your pension contributions to avoid exceeding this limit.

What is the Carry Forward Rule?

If you haven’t used your full Annual Allowance in the last three tax years, you can carry forward unused allowance to increase contributions.

For example:

• If you contributed £30,000 last year, you can carry forward the unused £30,000 to increase this year’s allowance.

• You must have been a member of a UK pension scheme in the year you are carrying forward from.

This rule is particularly useful for business owners and high earners who want to make large pension contributions.

Can I Pay Into My Pension If I’m Not Working?

Even if you do not have earnings, you can still contribute up to £3,600 per year (including tax relief).

This applies to:

• Stay-at-home parents.

• Unemployed individuals.

• Retirees under 75 years old.

What Happens If I Exceed the Annual Allowance?

If you pay more than £60,000 into your pensions in a tax year, you may:

• Lose tax relief on the excess amount.

• Have to pay an Annual Allowance Charge through Self-Assessment.

• Use the Carry Forward rule to offset excess contributions.

What Happened to the Lifetime Allowance?

Previously, there was a Lifetime Allowance (LTA) of £1,073,100, but it was abolished in April 2024.

Now, there is no limit on the total amount you can save in pensions, but withdrawals above £1,073,100 may still be subject to income tax.

Final Thoughts

You can contribute as much as you like to your pension, but tax relief is only available on up to £60,000 per year (or 100% of your earnings). High earners may be affected by the Tapered Annual Allowance, while those who have unused allowance from past years can use the Carry Forward rule.

To make the most of your pension contributions, it’s important to plan ahead, maximise tax relief, and avoid exceeding the limits. If you are unsure, speaking to a financial adviser can help optimise your retirement savings.