Bonus episode: How much can you pay into your pension this tax year?

The following is a transcript of a bonus podcast episode of The Pension Confident Podcast. Listen to the episode or scroll on to read the conversation.

PHILIPPA: Welcome back. Today’s bonus episode is all about pension contributions. And specifically how much you’ll be allowed to pay into your pension this tax year and what that could mean for your retirement finances.

With the start of the 2026/27 tax year, there are important rules and limits to understand when it comes to those contributions. So, whether you’re already saving for retirement or maybe you’re trying to maximise your tax relief, you might just be starting to think about your pension. This episode will get you up to speed on all the key need-to-knows.

I’m Philippa Lamb, and if you’ve not already subscribed to the podcast, why not click that subscribe button right now before we start? Joining me today, to break it all down, is Maike Currie, VP Personal Finance at PensionBee. Welcome back.

MAIKE: Thanks for having me.

PHILIPPA: Let me just give the usual disclaimer before we start. Please remember, anything discussed on the podcast shouldn’t be regarded as financial advice or legal advice, and when investing, your capital is at risk.

What’s the annual allowance?

PHILIPPA: OK, let’s start with the basics. There’s a limit to how much you can contribute into your pension each year, isn’t there?

MAIKE: That’s right. The annual allowance for how much you can put into your pension each year is £60,000 for the current tax year and then still receive tax relief on that.

The maximum you can put in is whatever’s the lowest between your annual salary and £60,000. So let’s say if, for example, someone’s salary is £30,000. That’s the maximum they can put in [their pension] and still receive tax relief. Let’s say someone’s salary is £80,000. They can only put in £60,000 and receive tax relief. Does that make sense?

PHILIPPA: Yeah. Got it. So does this limit apply to everyone?

MAIKE: Good question. If you’re a really high earner - and we’re talking [about ‘adjusted incomes’] exceeding £260,000 a year [and ‘threshold incomes’ over £200,000] - that annual allowance is tapered. It’s known as the ‘tapered allowance’, and it comes right down to £10,000 [for incomes of £360,000 or more]. So, for very high earners, the amount they can put into a pension is limited to a maximum of £10,000 [each tax year].

And if I’m talking about ‘tax relief’, I think the easiest way to think about tax relief is to think about it as free money. Now, who doesn’t like the sound of that, Philippa?

PHILIPPA: Sure, sure. Best thing about pensions.

MAIKE: Absolutely. So, the free money in this case is coming from the government. If you’re a basic rate taxpayer, the government will top up everything you put in [with] 20% [tax relief]. So, let’s say I’m putting £80 into my pension. By magic, in a few weeks’ time from HMRC, an additional £20 will come from the government, taking that [contribution] to £100. If I’m a higher rate taxpayer, I can get even more in tax relief. But I need to fill out my Self-Assessment in January, which those very high earners need to do, and they get more in the form of tax relief.

PHILIPPA: So, we’ve talked about ordinary people and we’ve talked about higher earners. What if you don’t earn anything at all? Can you still save into a pension?

MAIKE: You can, and this is really, really important, especially for those people taking a career break, maybe to raise a young family or to care for a sick or elderly relative. You can put in £2,880 into a pension [each tax year]. Now you might say, “Well, I don’t have the money lying around”. You could get someone else to pay into a pension for you. The tax relief you’ll receive will be in line with your basic rate of tax, which will be a basic rate taxpayer. So, you could then put in £2,880 or get someone to put that money in for you, and the government will top that up with tax relief to the value of £720, which will take the full amount to £3,600.

PHILIPPA: OK, so as you say, great for, I mean, particularly great for maybe young women at home with kids not working right now.

MAIKE: It’s so important. It’s something that people don’t think about. It’s also really useful for young children. Now, we never think about pensions and children. But if you put that money away for a young child, £2,880, you get the tax relief and you do that every year until a child is age 18 and then you stop contributing, there’s a very good chance with the power of ‘compound interest’ that that young child, they’ll be pension millionaires [at retirement] because of the long-term power of leaving the stock market to do its work and the beauty of compound interest.

PHILIPPA: It’s amazing. Obviously, [there are] no guarantees there. We did do a podcast episode about this, didn’t we? But it’s possible.

MAIKE: There’s no guarantee, but the key point here is when they’re in their 50s, those contributions will have grown to almost £1 million because of the power of time. Time being the most powerful ingredient when it comes to compound interest. I always say this is the ultimate gift that grandparents can give to young children. You won’t be around for them to thank you, but they might be pension millionaires, and in the meantime, you can reduce your Inheritance Tax (IHT) bill.

PHILIPPA: Yeah, and I’m sure they’ll think about you very fondly, especially if they do turn out to be millionaires.

Pension Lifetime Allowance scrapped

PHILIPPA: Now look, we’ve talked about the annual allowance. There used to be a Lifetime Allowance, didn’t there? Is that gone now? How did that work?

MAIKE: Yes. So, the ‘Lifetime Allowance’ was quite a contentious allowance and basically this meant a cap on how much you can save into your pension over your lifetime.

PHILIPPA: OK, so this is higher earners?

MAIKE: This is really higher earners, and it varied, but think about it as standing at around the £1 million mark [specifically £1,073,100]. Now that was abolished [on the 6 April] 2024, so there’s no longer a Lifetime Allowance. So, you can put as much as you want over your lifetime into a pension, which is really crucial. The key thing that’s still in place is the tax-free amount you can withdraw from your pension. There’s a cap on that [at £268,275].

Exceeding your annual allowance

PHILIPPA: Now, I have a question. What if, I mean - we talked about the limits to how much you can pay in, what if you pay in more than you should?

MAIKE: Well, I wouldn’t panic, but the key thing is you’ll face a tax charge. So, it’s really important to keep track of what you’re contributing. The tax year is a long time, 365 days. You might make a contribution, an ad hoc contribution. It’s really important that you keep a record of that so that you don’t exceed your annual allowance.

PHILIPPA: OK, so this is fine. Most people, if people are employed, their employer is going to do this for them. But if they’re not, it’s really something to watch.

MAIKE: Yes, that’s right. So, keep a record of that because when it comes to January and you’re filling out your Self-Assessment, you need to put those details into your Self-Assessment.

PHILIPPA: I’m guessing there are tools and resources people can use to do this?

MAIKE: Oh, there are brilliant tools around. I’d point to the great tools we have on the PensionBee website, things like the PensionBee [Pension] Calculator. All of that can help you make decisions.

PHILIPPA: And you don’t need to be a customer to use that, do you?

MAIKE: No, it’s available freely on the website and it’s a brilliant calculator, if I say so myself.

Using your carry forward allowance

PHILIPPA: So, let’s imagine then, in the happy event that you come into some money, I mean, maybe [you] get an inheritance or a gift or a big pay rise. So you’ve got some spare cash, a lump of cash. Can you make a kind of bumper contribution into your pension?

MAIKE: You can, and this is a really good way to supercharge your pension. We all reach our 40s often and we look at our pension pot, and we have this moment where we think, “Oh my goodness, do I have enough?”. Now, this is the time, if you come into that lump sum by whichever means, to make the most of ‘carry forward’ rules.

Now, it’s highly unlikely that most of us will put in the full £60,000 or our full salary into a pension every year. The unused allowance we can carry forward. And you can carry forward the unused allowance from the previous three tax years.

PHILIPPA: OK, that’s really worth knowing about, isn’t it?

MAIKE: Yes. So technically, if you think about it, let’s say for the previous three years you didn’t use any of your annual allowance, that could give you £180,000 carry forward allowance, assuming that you earned in line with that [£60,000] amount.

PHILIPPA: Yes, because as you say, you can only put in as much as you earn.

MAIKE: This’s the key thing. So, let’s say you’re an earner and your annual salary is £25,000. That’s the maximum you can put in that year and that’s the maximum carry forward from that specific tax year.

PHILIPPA: There’s just one fly in the ointment with all this, isn’t there?

MAIKE: There is. And this is a really important point. To make the most of carry forward, you have to have been an active member of a pension scheme. You have to have been in a pension scheme in that year.

PHILIPPA: During the years you’re trying to carry forward?

MAIKE: Yes.

PHILIPPA: Yeah, OK. That’s a key point.

Final thoughts

PHILIPPA: So, it sounds a bit complicated. How can people check if they’re eligible to use carry forward?

MAIKE: Well, the key thing is to look back at your P60 because that’ll give you an idea of how much you earned in that specific tax year. And then look at your pension, whether you’ve got a personal pension or whether you’ve got a workplace pension, and look at what your annual [pension] contributions were. And then do the Maths.

PHILIPPA: Well, that’s everything you need to know about pension contribution limits for this [tax] year. Thank you, Maike.

MAIKE: Thank you.

PHILIPPA: If you’re enjoying the series, why not let us know by giving us a rating or maybe a review? And if you’ve missed an episode, don’t worry, catch up anytime on your favourite podcast app or on YouTube, or if you’re a PensionBee customer, in the PensionBee app.

Just that final reminder: anything discussed on the podcast shouldn’t be regarded as financial advice or as legal advice. And when investing, your capital is at risk. Thanks for joining us. We’ll see you next time.

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.