A pension is a long-term investment. Its value can go down as well as up and could be worth less than was paid in. Laws and tax rules may change in the future. Your own circumstances and where you live in the UK will also have an impact on tax treatment.

 

What is the pension annual allowance?

The annual allowance is the total that you, your employer and any third party can pay in across all your pension plans in any given tax year. Any more than this and you could get a tax charge. Right now*, the annual allowance is £60,000.

* Last updated February 2025

 

Do you have unused annual allowances from previous years?

If the full allowance has not been paid into your pension in the last three years you may be able to carry forward your unused allowance. It could let you pay in more in this tax year to make the most of the tax relief on offer, but this is still subject to your level of earnings.

Find out if you have any unused allowance by asking your pension provider. If you’re a Standard Life customer, you can go to the secure pension page or app. Find out more about secure online servicing or contact us.

If you do, you may be able to carry it forward to next year. Or, you and your employer could pay more into your pension plan this year.

How taking money from your pension plan affects your annual allowance

Taking more than just your tax-free lump sum from your pension plan can lower your annual allowance. This is called the Money Purchase Annual Allowance. The allowance is £10,000 each tax year. You can’t carry forward this allowance. It applies if you take your pension pot in lump sums or as a flexible income. However, buying an annuity or getting defined benefit pension payments or cashing in pension plans worth £10,000 or less won't trigger this.

You will be a high earner if you have an ‘adjusted income’ of £260,000. This includes how much your employer pays into your pension plan, your salary and any other income you get each year. So, pension and rental income, dividends, interest on savings and sales commission are all part of it.

If the total is over £260,000, your annual allowance is reduced by £1 for every £2 over the limit. This will apply until your allowance gets to £10,000.

 

Need more help?

For more information visit  MoneyHelper , the government backed guidance and support service.

Alternatively, a financial adviser could help you plan for your future. They are likely to charge a fee for their services. Our financial advice page explains what they do, and why you might want one.

More about pensions

We want to help you get the most out of your pension. We have guides, tools, articles and more to help you understand how pensions work and how to keep your savings on track.

  • Lump Sum Allowances

    These are limits on the total tax-free lump sum benefits that can be paid from all your pensions during your lifetime and on death.

  • Tax in retirement

    Don't pay more tax than you need to in retirement. Find out how to be tax-efficient with your pension money.

  • Passing on your pension

    Pensions are a tax-efficient way to pass on your wealth. Here's how to do it in the right way.