How much can I pay into a pension each year?
In order to avoid a pensions shortfall in later life, we’re advised to pay as much as we can afford into our pension pots. And the sooner we start, the better. But is there such a thing as too much when it comes to pension contributions and what impact can this have on the tax we pay?
Pension limits explained
In the UK there’s no cap on the amount of money taxpayers can save into a pension each year, however there is a limit on how much is tax-free. Whenever you make contributions to a pension you get tax relief from the government. This can come as extra money in your pot for the future, or a reduction in tax today, depending on the scheme you have in place. When you make contributions with PensionBee we will automatically add a 25% tax top up from HMRC.
Annual pension allowance
You can receive pension tax relief on any personal contributions that you make, up to 100% of your salary. There is also a separate limit on the sum of all contributions (personal contributions including tax relief, and employer contributions) that you can make in a tax year capped at _annual_allowance gross for _current_tax_year_yyyy_yy. This amount is known as the annual allowance and any contributions that you make over this limit are taxed at your highest rate.
Contributions that exceed the _annual_allowance allowance are subject to an annual allowance charge in line with income tax. Under the right circumstances you may have the option to carry forward any unused allowances from the previous three years, totalling up to _max_carry_forward, on top of your current year’s annual allowance.
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If you’re working full time and are nearing retirement it can be sensible to save as much as possible. Just don’t forget to double check how much of your allowance you’ve used in recent years and that any contribution is not higher than your earnings.
For those who have already begun drawing a pension, the annual allowance for contributions under the money purchase annual allowance (MPAA), may be capped at _money_purchase_annual_allowance.
If you have an adjusted income of over _adjusted_income, including pension contributions, and a threshold income over _threshold_income, your annual pension allowance may be reduced. In this case, your annual allowance decreases by £1 for every £2 over _adjusted_income, down to a minimum of £10,000 if you earn _max_adjusted_income or more.
Lifetime pension allowance
The pension lifetime allowance (LTA) was the total value that you could save across all of your pension pots without having to pay an extra tax charge.
The LTA was fully abolished on 6 April 2024 and was replaced with three different allowances:
- the lump sum allowance (LSA);
- the lump sum and death benefits allowance (LSDBA); and
- the overseas transfer allowance (OTA).
Drawing your pension
Once you reach age 55 or over (57 from 2028), you are eligible to start drawing your pension. You can take up to 25% as a tax-free lump sum, and will be charged income tax at your highest rate thereafter. Learn more about Drawdown from PensionBee today.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2025
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