With a background in financial journalism across national titles, Ruby loves helping people take control of their money and specialises in pensions, tax, banking and benefits.
Over 30,400 people breached their pension annual allowance in the 2024-25 tax year, up a fifth on the previous year.
The annual allowance is the maximum amount you can contribute to your pensions each tax year while still receiving tax relief. Although the threshold increased from £40,000 to £60,000 in April 2023, allowance breaches continue to rise.
For higher earners, this limit is personalised based on income. Known as the tapered annual allowance, it can reduce your threshold to as little as £10,000.
Tax relief is effectively extra money paid into your pension by the government when you pay into your pension. It ranges from an extra £20 to £45 for every £100 you add to your pension, so missing out on it can hugely hamper your savings for retirement.
Here, Which? explains how the annual allowance and taper relief work, why breaches are growing, and what you can do if you are close to the threshold.
Each tax year, you can save up to £60,000 into your pension across all contributions, and receive tax relief on your contributions, up to 100% of your UK taxable earnings.
However, high earners are subject to the tapered annual allowance, which was introduced in 2016. Under the taper allowance, if your income is over £200,000 and your adjusted income exceeds £260,000, your annual allowance is reduced by £1 for every £2 of adjusted income above £260,000.
This taper applies until your allowance reaches its minimum limit of £10,000, which applies to anyone with an adjusted income of £360,000 or more.
To calculate your exact tapered annual allowance, you need to know your threshold and adjusted income. These calculations can be complicated. For help with the calculations and what to include, check out the government's guide on Work out your reduced (tapered) annual allowance on GOV.UK.
If you save more into your pension than your allowed limit, the extra money is added to your income for that year and taxed at your normal tax rate: either 20%, 40% or 45%. This effectively cancels out the tax relief you recieved.
You can pay this bill yourself through a self-assessment tax return, or you can ask your pension provider to pay HMRC directly from your pension pot if the tax bill is over £2,000.
According to the latest data, the total value of pension contributions exceeding the limit climbed from £505million to £672million – a rise of 33%.
Whether you’re unsure if you have enough to retire, or are already accessing your savings, our money guidance service can talk you through your options. Which? Money members get unlimited access to them via phone.
Find out moreAccording to the financial advice firm Evelyn Partners, it's hard to pinpoint the exact reason why more people are being affected by the charge. But some of the common ways include:
Large employer contributions or bonuses: All money paid into your pension by your employer – including bonuses and salary sacrifice – counts toward your £60,000 yearly limit. Getting a big bonus or a large company contribution can quickly push you over this allowance.
Pay rises in final salary pensions: For final salary (Defined Benefit) pensions, your allowance is based on how much your future payout grows, not the cash paid in. A big pay rise or promotion can suddenly boost your pension's value and trigger a tax breach, even if you did not add extra cash yourself.
Triggering the Money Purchase Annual Allowance (MPAA): Taking taxable money from your pension for the first time triggers a rule called the money purchase annual allowance (MPAA).
This permanently drops your yearly pension contribution limit from £60,000 to just £10,000. It applies if you take flexible income or taxable lump sums, though taking only your 25% tax-free cash will not trigger it. Once triggered, you also lose the ability to carry forward unused allowances from past years, making it very easy to accidentally breach the lower £10,000 limit if you keep paying in.
High earnings shrinking your limit: If your income passes £200,000 and total income plus pension contributions passes £260,000, your yearly allowance starts to drop. So if you receive an unexpected bonus, pay rise, or investment gain which takes you over these thresholds, it can shrink your limit mid-year, leaving your usual contributions over the new lower limit.
Large personal pension investment: Under the current rules, you only get tax relief on personal payments up to your total earnings for that year, capped at £60,000. If you pay in a huge amount – such as an inheritance – without checking your employer’s contributions or using unused allowance from previous years, you could face an unexpected tax bill.
It's important to note that the annual allowance affects only the highest earners.
HMRC does not have the data on how many people are affected by the tapered pension allowance. However, according to HMRC data, around 367,000 people have primary earnings above £200,000.
Typically, the groups affected by the taper allowance include:
Find out more: are you making the most of your workplace pension?
It can be hard to avoid the lowering of your pension allowance. People with very high salaries usually cannot avoid it. However, if your income is only slightly over the limit, there are ways to prevent having to pay:
If you didn't use up your personal allowance last year, you can use it this year, on top of this year's allowance. You can bring forward unused allowances from the last three tax years. However, you must have been a member of a registered pension scheme during the tax year you are carrying forward from – though you did not need to make contributions in that year.
If you reach your pension limit, you can look at other ways to save for retirement. If you are under age 40, you can open a Lifetime Isa (Lisa) to save up to £4,000 annually and receive a 25% government bonus on your contributions.
You can deposit up to £20,000 each tax year in a stocks and shares Isa, and all returns and withdrawals are exempt from UK capital gains and income tax. This £20,000 limit covers all Isas, including cash and Lisas.
If you have maxed out your own allowance, you can contribute money directly into your spouse or civil partner’s pension instead. As long as they are under age 75, you can contribute up to £2,880 each tax year into their pension even if they have no income, which automatically grows to £3,600 after basic-rate tax relief is added.
If your partner earns an income, you can pay in up to 100% of their earnings – subject to their own annual allowance – allowing you to save more as a household while benefiting from extra tax relief.
Alternatively, you could help a child or grandchildren, such as by paying into a Junior Isa (up to £9,000 year) or even a child's pension (up to £2,880), though bear in mind they wouldn't be able to access the latter until at least their 50s.
Select the option that best describes your current situation.
