Pension Annual Allowance Stays at £60,000

The pension annual allowance for 2025/26 is confirmed at £60,000, unchanged from the previous tax year. This is the maximum total amount that can be contributed to pension schemes in a tax year (combining both employer and employee contributions, including salary sacrifice) before the annual allowance charge applies. For most high earners, this £60,000 limit provides substantial scope for tax-efficient retirement saving, particularly given the relief available at 40% and 45% marginal rates.

High earners with threshold income above £200,000 and adjusted income above £260,000 face the tapered annual allowance. For every £2 of adjusted income above £260,000, the annual allowance is reduced by £1, down to a minimum of £10,000. This means the taper fully applies at adjusted income of £360,000 and above. Understanding the interaction between salary, bonuses, employer pension contributions, and other income sources is essential for anyone in this range — an unexpected bonus or investment gain could push adjusted income above the taper threshold, reducing the pension allowance and potentially triggering a tax charge.

Carry forward remains available for unused annual allowance from the three preceding tax years (2022/23, 2023/24, and 2024/25), provided the individual was a member of a registered pension scheme in those years. This may be relevant for high earners who have not used their full pension allowance in recent years — it can permit a single contribution of well over £60,000 in one tax year. The lifetime allowance was abolished from April 2024, removing the previous cap on total pension savings, though the lump sum allowance of £268,275 still limits the tax-free cash that can be taken on retirement.