Pension tax relief & allowances: the complete guide
How relief actually reaches your pension, the £60,000 annual allowance and taper, carry forward, and life after the Lifetime Allowance.
Pensions are the most tax-efficient way most people will ever save — money goes in with tax relief, grows free of tax, and 25% can usually come out tax-free. But the rules around how relief is given and how much you can put in are where people slip up. This guide is the reference: the three relief methods, the allowances, and what changed when the Lifetime Allowance was abolished.
Three ways relief reaches your pension
| Method | How relief works |
|---|---|
| Relief at source | You pay from net pay; the provider reclaims 20%. Higher-rate relief is claimed separately. |
| Net pay arrangement | Contribution comes off gross pay before tax — full relief automatically. |
| Salary sacrifice | You give up salary for an employer contribution — saves income tax AND National Insurance. |
The differences matter. Relief at source leaves higher-rate taxpayers needing to claim the rest themselves. Salary sacrifice is the only method that also saves National Insurance — see our salary sacrifice guide.
The annual allowance
The annual allowance is the most you can pay into pensions each year with tax relief — £60,000 for most people, counting both your contributions and your employer's. Pay in more and a tax charge claws back the relief on the excess.
The tapered annual allowance
Very high earners get a reduced allowance. The taper kicks in if your threshold income exceeds £200,000 and your adjusted income exceeds £260,000 — then your £60,000 allowance falls by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000 (reached at £360,000 of adjusted income).
The money purchase annual allowance
The moment you flexibly access a defined-contribution pension — taking taxable income from it, beyond just the tax-free cash — your annual allowance for further DC saving drops to the Money Purchase Annual Allowance (MPAA) of £10,000, and you lose carry forward for DC pensions. If you intend to keep contributing, be careful how you first draw your pension.
Carry forward
If you haven't used your full allowance in the last three tax years, you can carry it forward and contribute more than £60,000 in a single year with full relief — provided you were a pension scheme member in those years. You use the current year first, then the oldest unused year first. It's the tool that lets a good year of earnings be matched by a large catch-up contribution.
Claiming higher-rate relief
Under relief at source you only get 20% automatically. Higher and additional-rate taxpayers must claim the further 20% or 25% — usually through Self Assessment, sometimes via a tax-code adjustment. You can go back four years. It's one of the most commonly missed reliefs in the system; we cover the mechanics in a dedicated article.
Life after the Lifetime Allowance
The Lifetime Allowance — the old cap on total pension value — was abolished on 6 April 2024. There's no longer any limit on how big your pension can grow. In its place are two lump-sum allowances:
| Allowance | Limit | Covers |
|---|---|---|
| Lump Sum Allowance (LSA) | £268,275 | Total tax-free cash you can take |
| Lump Sum & Death Benefit Allowance (LSDBA) | £1,073,100 | Tax-free lump sums across life and death |
So you can still take 25% tax-free, but capped by the £268,275 LSA. The abolition of the LTA removed the cap on pension value, not on tax-free cash — a distinction worth getting right.
Relief for non-earners
Sources & further reading
This guide is general information, not personal tax advice, and reflects the rules we believe to apply as at June 2026 — rates and thresholds change. Always check your own figures against HMRC and consider a qualified adviser before acting. You remain responsible for the accuracy of anything you file.
See your pension allowance in real time
Model contributions, check your annual allowance and taper, and surface unclaimed higher-rate relief on your Self Assessment.
Start freeFrequently asked questions
How much can I pay into a pension tax-free?
Up to your annual allowance — £60,000 for most people in 2025-26, or 100% of your earnings if lower. It’s reduced by the taper for very high earners and by the £10,000 money purchase annual allowance if you’ve flexibly accessed a pension.
How do I claim higher-rate pension tax relief?
Relief at source adds 20% to personal pension contributions automatically; higher and additional-rate taxpayers claim the extra 20–25% through Self Assessment or by contacting HMRC. You can usually go back four years.
What is the tapered annual allowance?
For high earners with threshold income over £200,000 and adjusted income over £260,000, the £60,000 allowance falls by £1 for every £2 of adjusted income above £260,000, down to a £10,000 floor.
Can I carry forward unused pension allowance?
Yes — you can use unused annual allowance from the previous three tax years, as long as you were a member of a registered pension scheme in those years.
Is there still a pension Lifetime Allowance?
No — the Lifetime Allowance was abolished from 6 April 2024 and replaced by lump-sum allowances that cap the tax-free cash you can take.