Your pension contribution limit depends on your income
For 2023/24 the tax free annual limit is 100% of your salary or £60,000 (whichever is lower). This includes both contributions paid by you and contributions paid by your employer.
If you earn less than £3,600, or you don’t earn anything at all, you’re still allowed to receive tax relief on pension contributions up to £3,600 gross. That means you can save up to £2,880 net plus a 25% tax top up. You can still make employer pension contributions on top of this to bring you up to the ‘Annual Allowance’ of £60,000 though. Effectively this means that the total of your employer pension contributions + personal pension contributions + HMRC top ups cannot exceed £60,000 across the tax year. You can find out more about adding to a pension in special circumstances such as low income, high income or unemployment in our Pensions Academy video.
Recently, a tapered allowance has been introduced for high earners. It mainly affects people who earn over £200,000, and we’ve detailed the rates on our pension tax relief page.
Up to the pension contribution limit, you receive generous pension tax relief on your contributions. The amount you receive depends on your income tax bracket: you automatically get a 25% tax top up, but you can claim a further 25% or 31% through your tax return if you’re a higher or additional rate taxpayer.
The pension contribution limit is per person rather than per pension, so if you have more than one pension, the total amount that you contribute across all pensions should not exceed the limit. You can carry forward any allowances that you may not have used during the three previous tax years, as this article on the GOV.UK website explains.
What happens if you exceed the pension contribution limit
If you exceed the limit, you’ll be eligible to pay tax on any amount over the contribution limit. This is called an ‘annual allowance charge’, and it will be added to the rest of your taxable income for the year when your tax liability is calculated.
Alternatively, you may be able to ask your pension provider to pay the charge from your pension benefits. In some situations, you may be able to reduce the charge by bringing forward some of your annual allowance from previous years.
Sticking to your pension contribution limits
It’s a good idea to keep track of your pension contributions so that you know if you’re getting close to your annual limit. If you open a PensionBee pension you’ll be able to log in online to check your pension any time, and you can see a record of your previous contributions.
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: 04-09-2023