Pension Allowances Guide UK 2026/27 — AA, MPAA, LSA & Taper

The allowance framework

UK pensions have multiple allowances that control how much you can contribute and how much can be withdrawn tax-free. Understanding them prevents nasty tax surprises.

Annual Allowance (AA)

The standard limit on tax-relieved pension contributions per tax year.

• 2026/27 standard AA: £60,000
• Or 100% of relevant UK earnings, whichever is lower
• Includes personal contributions + employer contributions + tax relief
• Excess contributions trigger an Annual Allowance Charge at your marginal rate

Tapered Annual Allowance

High earners have the AA reduced.

• Applies if "threshold income" over £200,000 AND "adjusted income" over £260,000
• AA reduces by £1 for every £2 above £260,000 adjusted income
• Minimum £10,000 AA (once adjusted income hits £360,000+)

Money Purchase Annual Allowance (MPAA)

Triggered when you start taking taxable income from a defined-contribution pension.

• MPAA: £10,000 (2026/27)
• Applies to future money-purchase contributions only
• DB accruals still get the full AA (subject to taper)
• Triggered by taking any taxable pension income — not by the 25% tax-free lump sum alone

Matters if you're planning to keep working and contributing while in drawdown.

Carry Forward

Unused Annual Allowance from the previous 3 tax years can be added to the current year's contribution.

• Requires being a member of a UK pension scheme in each carry-forward year
• Can add up to £180,000 (3 × £60,000) to current year if fully unused
• Requires current-year earnings sufficient to support the contribution
• MPAA overrides carry-forward — once MPAA triggered, only £10,000 for money-purchase

Lifetime Allowance / Lump Sum Allowance

The old Lifetime Allowance was scrapped April 2024. Replaced by:

• Lump Sum Allowance (LSA): £268,275 — the total tax-free lump sum you can take across all pensions.
• Lump Sum & Death Benefit Allowance (LSDBA): £1,073,100 — for lump sum death benefits.

You can build a pension pot above these levels, but tax-free lump sums are capped. Excess withdrawals are taxed as income at marginal rate.

Small Pots Rules

Pension pots under £10,000 can be taken as small pot lump sums, up to 3 personal pensions in a lifetime, without triggering MPAA. Useful for tidying up multiple small legacy pensions.

State Pension threshold

The State Pension has its own reduction rules. Deferred State Pension increases 1% per 9 weeks of deferral. Contributions to National Insurance require 35 qualifying years for full State Pension.

Real UK examples

Example 1 — Annual Allowance exceeded. Marcus contributes £70,000 to his SIPP in a year (thinking £60k limit plus £10k excess). His actual relevant earnings that year are £45,000. He can only claim relief on £45,000. Excess £25,000 must be either declared as excess or reallocated.

Example 2 — using carry-forward. Priya contributed £20,000/year to her SIPP in each of the past 3 years. Unused: 3 × £40,000 = £120,000. This year she wants to make a large contribution. If her current earnings support it, she can contribute up to £180,000 with full relief (£60,000 current + £120,000 carry-forward).

Example 3 — MPAA trigger. Alex (age 58) starts taking taxable drawdown from his SIPP. His MPAA drops to £10,000. His workplace pension contributes 8% of £80,000 salary = £6,400 employer + 5% employee = £4,000 employee. Combined £10,400 — over MPAA by £400. Triggers a tax charge.

Common mistakes

• Contributing above annual allowance without checking earnings.
• Ignoring MPAA when planning to keep working during drawdown.
• Not using carry-forward — leaving up to £180k of unused allowance on the table.
• Assuming Lifetime Allowance still applies — it doesn't since April 2024.
• Missing State Pension qualifying years without checking.

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Frequently asked questions

What's the pension annual allowance for 2026/27?

£60,000, or 100% of relevant UK earnings if lower. Tapered down for very high earners.

Can I use previous years' unused allowance?

Yes — carry-forward lets you use unused Annual Allowance from the previous 3 tax years, subject to earnings.

What triggers MPAA?

Taking any taxable income from a defined-contribution pension. The 25% tax-free lump sum alone doesn't trigger it.

Is there still a Lifetime Allowance?

No — abolished from April 2024. Replaced by Lump Sum Allowance (£268,275) capping the total tax-free lump sum across all pensions.

How many years of NI do I need for full State Pension?

35 qualifying years. Check your forecast at gov.uk.