The floor the £60,000 annual allowance tapers down to for the highest earners — losing £1 of allowance for every £2 of adjusted income above £260,000. A £50,000 reduction in the most tax-efficient shelter available, arriving exactly when it is most useful.
The annual allowance is the ceiling on how much can go into your pensions each year with tax relief. For 2026/27 it is £60,000, or 100% of your earnings if that is lower, and it counts everything — your contributions, your employer's, and in a defined benefit scheme the deemed value of the extra pension you accrued.
For most people the allowance is theoretical; the average worker is nowhere near it. For high earners it is the central constraint on retirement planning, and the taper is what makes it bite hardest on precisely the people with the most income to shelter.
How the Taper Works
Once adjusted income exceeds £260,000, the allowance falls by £1 for every £2 above that threshold, until it reaches a floor of £10,000. The mechanism is the same shape as the personal allowance taper that produces the £100k trap — a benefit withdrawn at 50p in the pound — but applied to your ability to save rather than to your tax-free income.
| Adjusted income | Reduction | Annual allowance |
|---|---|---|
| £260,000 or below | — | £60,000 |
| £280,000 | £10,000 | £50,000 |
| £300,000 | £20,000 | £40,000 |
| £340,000 | £40,000 | £20,000 |
| £360,000 and above | Capped | £10,000 (floor) |
The row that matters most is the last: beyond a certain point the taper stops, so someone on £400,000 and someone on £900,000 have the same £10,000 allowance. The pain is concentrated in the band where the taper is actually running.
"Adjusted Income" Is Not Your Salary
This is where the taper catches people who were not expecting it. Adjusted income is a broader measure than salary — broadly your total income plus pension contributions, including your employer's. That last part is the trap: a generous employer contribution increases the figure used to decide whether your allowance is cut.
Several categories of people cross the threshold in a year they did not plan to:
- Anyone with a large one-off bonus, where a single payment lifts an otherwise-comfortable income over the line.
- Senior public sector staff in defined benefit schemes, where a promotion increases the deemed value of accrual sharply — a well-documented issue in the NHS and other public schemes.
- People with substantial investment or rental income alongside a salary, since it is total income that counts, not employment income.
- Anyone with a good year in a business — a single strong period can taper an allowance that was fine the year before and fine the year after.
The taper is assessed on the year, not on your expectations of the year. That is why the problem is usually discovered afterwards, when contributions have already been made against an allowance that turned out to be smaller. If your income is anywhere near £260,000, the position needs modelling before the tax year ends, not after.
Carry Forward: the Relief Valve
Unused annual allowance from the three previous tax years can be carried forward and added to the current year's, provided you were a member of a registered pension scheme in those years. For someone newly tapered this is often the difference between a workable contribution and a charge.
Two constraints keep it honest. You must use the current year's allowance first, and the total contribution is still capped at 100% of your earnings for the year — carry forward extends the allowance, not the earnings limit. Both are easy to overlook when reading the headline figure of available unused allowance.
What Happens If You Exceed It
Contributions above your allowance attract an annual allowance charge, which effectively removes the tax relief on the excess by adding that amount to your taxable income. The result is not a penalty as such — it is the relief being taken back — but it is a real and often substantial bill.
The practical problem is detection. Nobody sends you a statement combining every scheme you belong to, so someone with a current employer's scheme, a personal pension and a legacy scheme from a previous job has to assemble the total themselves. Where the charge is large enough, it may be possible to have the scheme pay it from your benefits rather than paying it personally — a route worth asking your provider about.
The Money Purchase Annual Allowance Is a Separate Trap
Distinct from the taper, and easy to trigger by accident: once you have flexibly accessed a defined contribution pension, your allowance for future defined contribution saving drops to the Money Purchase Annual Allowance of £10,000. Carry forward cannot be used against it.
This catches people who take a small amount from a pension in their fifties — to clear a debt, or simply because they can — while still working and still contributing. The withdrawal permanently reduces what they can put back. Taking only the tax-free element generally does not trigger it, but taking taxable income does, so the order and form of a first withdrawal matters enormously.
Why It Is Still Worth Contributing to the Limit
None of the above is an argument against pension saving for high earners — it is an argument for knowing the number. Relief at 40% or 45% means a £100 contribution can cost as little as £55, and for anyone in the £100,000–£125,140 band where the personal allowance taper creates a 62% effective marginal rate, a contribution that brings adjusted net income back below £100,000 is one of the highest-return actions available in UK tax. Our adjusted net income guide covers that calculation, and pension tax relief explains how the relief is actually delivered.
Frequently Asked Questions
What is the pension annual allowance for 2026/27?
£60,000, or 100% of your earnings if lower. It counts your contributions, your employer's, and defined benefit accrual combined.
When does the tapered annual allowance start?
When adjusted income exceeds £260,000. The allowance then falls by £1 for every £2 above that, down to a floor of £10,000.
What counts as adjusted income?
Broadly your total income plus pension contributions, including your employer's. It is wider than salary, which is why bonuses, investment income and generous employer contributions can push people over the threshold unexpectedly.
Can I carry forward unused annual allowance?
Yes, from the three previous tax years, provided you were a member of a registered scheme in those years. You must use the current year's allowance first, and the total is still capped at 100% of your earnings for the year.
What is the Money Purchase Annual Allowance?
£10,000, applying to defined contribution saving once you have flexibly accessed a pension. Carry forward cannot be used against it, so a small taxable withdrawal in your fifties can permanently limit what you put back.
What happens if I exceed my annual allowance?
An annual allowance charge applies, effectively withdrawing the tax relief on the excess by adding it to your taxable income. Where the charge is large enough, your scheme may be able to pay it from your benefits.
Related Guides
Keep reading with these related guides:
- Adjusted Net Income Explained — the related figure that drives the 62% band
- How Pension Tax Relief Works — net pay, relief at source and salary sacrifice
- The £100k Tax Trap — the personal allowance taper alongside this one
- Workplace Pensions Explained — auto-enrolment and the basics
- How the Wealthy Structure Their Income — where pensions fit in the wider picture
- Pension Calculator — model your contributions
- All Tax Guides
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