Pension Contributions

Pension contributions allow you to build a retirement fund while reducing your current tax bill. In the 2024–25 tax year, most people can contribute up to £60,000 to their pension(s) and receive full tax relief on those payments. This annual allowance covers all contributions—your own and any made by your employer—across defined contribution and defined benefit schemes. If your “adjusted income” (total taxable income plus pension contributions) exceeds £260,000 and your “threshold income” (income after pension contributions but before other reliefs) exceeds £200,000, your annual allowance reduces by £1 for every £2 of adjusted income above £260,000. This tapered allowance can fall as low as £10,000, so high earners need to track contributions carefully.

You must report contributions that exceed the annual allowance on your Self-assessment tax return and pay an annual allowance charge on the excess. However, if you have not used your full allowance in the previous three tax years, you can carry forward the unused portion to cover higher contributions. Those who have accessed their pension under flexible drawdown rules are subject to the Money Purchase Annual Allowance, which caps future tax-relievable contributions at £10,000 per year. 

To avoid unexpected charges, keep detailed records of all contributions and understand how relief is applied—whether through net pay arrangements (which automatically reduce your taxable pay) or relief at source (where you claim higher-rate relief via Self-assessment). Monitoring your pension inputs against both standard and tapered allowances helps ensure you maximise tax relief without incurring penalties.