What Happens If I Contribute More Than My Annual Allowance

Introduction

The government encourages people to save for retirement by offering tax relief on pension contributions. However, to keep the system fair, there is a cap on how much you can contribute each year while still benefiting from full tax relief. This is known as the annual allowance.

If your total contributions go over this limit, you will not lose your pension savings, but you may have to pay an additional tax charge to HMRC. Understanding how this works will help you plan your contributions more effectively and avoid unexpected bills.

What is the annual allowance

The annual allowance is the maximum amount that can be contributed to all your pensions combined each tax year while still qualifying for tax relief. For the 2025 26 tax year, the standard annual allowance is £60,000 or 100 percent of your annual earnings, whichever is lower.

Your allowance includes:

Personal contributions (from you).

Employer contributions.

Contributions made on your behalf, such as through salary sacrifice.

Tax relief added by HMRC.

If your total contributions exceed this limit, the excess amount becomes subject to an annual allowance tax charge.

The annual allowance charge

If you pay more into your pension than the allowance allows, you must pay tax on the excess at your marginal rate of Income Tax. This means the charge is 20 percent, 40 percent, or 45 percent, depending on your total income for the year.

The charge effectively removes the tax benefit on the amount you overpaid.

For example:

You earn £80,000 a year.

Your total pension contributions (including employer payments and tax relief) come to £70,000.

You have exceeded your allowance by £10,000.

The £10,000 excess will be taxed at 40 percent, meaning a £4,000 charge.

You can pay this charge directly to HMRC, or in some cases, your pension provider can pay it on your behalf (known as Scheme Pays).

When the annual allowance is reduced

Some people have a lower annual allowance due to specific circumstances. The two main cases are:

1. The tapered annual allowance

If you are a high earner, your annual allowance may be reduced under the tapered annual allowance rules. This applies if:

Your adjusted income (total income plus employer pension contributions) is over £260,000.

Your threshold income (income excluding pension contributions) is over £200,000.

For every £2 of adjusted income above £260,000, your annual allowance reduces by £1, down to a minimum of £10,000.

2. The Money Purchase Annual Allowance (MPAA)

If you have started drawing taxable income from a defined contribution pension, your annual allowance for future contributions falls to £10,000. This is known as the Money Purchase Annual Allowance (MPAA).

You trigger the MPAA when you access your pension flexibly, for example by taking a taxable lump sum or drawing down income.

Using carry forward to avoid a tax charge

If you go over your annual allowance, you may not have to pay the tax charge immediately if you have unused allowance from the previous three tax years. This is called carry forward.

To use carry forward, you must:

Have been a member of a registered pension scheme during the years you are carrying forward.

Use up your current year’s allowance before applying unused allowances from previous years.

For example:
If your total contributions for 2025 26 are £75,000, you could use £15,000 of unused allowance from an earlier year to stay within the limit and avoid the charge.

Carry forward is particularly useful for people who receive one-off bonuses, profit-related payments, or large employer contributions.

How to check if you have exceeded the limit

You can find out your total pension contributions by checking your annual pension statements or contacting your providers. Add up:

Your personal contributions (before tax relief).

Any tax relief added by HMRC.

Your employer’s contributions.

Compare this figure to your annual allowance (or tapered/MPAA limit, if applicable). If the total exceeds it, you may owe a charge.

If you are unsure, your pension provider can help you calculate your pension input amount, which is the figure HMRC uses to assess your contributions for the tax year.

Paying the annual allowance charge

There are two main ways to pay the charge:

Through your Self Assessment tax return:
If the excess is small or across multiple pensions, you can report it on your Self Assessment return and pay HMRC directly.

Through your pension scheme (Scheme Pays):
If the charge is £2,000 or more from one scheme, you can ask your provider to pay it using your pension funds. The provider will then reduce your benefits by the equivalent amount.

You must notify your scheme by 31 July in the year following the tax year the charge relates to if you want to use Scheme Pays.

Common causes of exceeding the allowance

Receiving a large bonus that increases employer contributions.

Contributing to multiple pension schemes without adding them together.

Failing to account for the value growth in a defined benefit (final salary) scheme.

Forgetting that tax relief from HMRC counts towards the total allowance.

Monitoring your pension contributions each year helps prevent accidental breaches.

Reducing the impact

If you find that you have exceeded your allowance:

Use carry forward if you have unused allowance from earlier years.

Check whether you have triggered the MPAA or tapered allowance.

Seek professional advice to plan future contributions efficiently.

Consider asking your pension provider to handle the charge through Scheme Pays if the amount is large.

Example scenario

Jane earns £150,000 and contributes £30,000 to her personal pension. Her employer contributes £35,000.
Her total contributions are £65,000, which is £5,000 above the standard annual allowance.
Jane uses £5,000 of unused allowance from a previous tax year, bringing her total back within the limit. As a result, she avoids the annual allowance charge completely.

Common mistakes to avoid

Assuming the £60,000 limit applies per pension rather than across all schemes.

Forgetting to include employer contributions when calculating totals.

Missing the three-year carry forward window.

Overlooking the reduced limit caused by MPAA or tapering.

Conclusion

If you contribute more than your annual allowance, you will not lose the excess amount, but you may have to pay an annual allowance tax charge. Fortunately, most people can reduce or eliminate the charge using carry forward from previous years.

Keeping track of all your pension contributions and understanding how the annual allowance works helps you plan more efficiently and avoid unnecessary tax costs. If your contributions are close to the limit or you have complex pension arrangements, consider seeking advice from a financial planner or tax specialist to ensure you stay compliant and maximise your savings potential.