Pension Annual Allowance 2025/26

Now that we’re in the 2025/26 tax year, understanding any changes or alterations to pension contributions and annual allowance rules is vital. For those who are approaching or thinking about retirement, confirming the pension annual allowance rules for 2025/26 is a pivotal first step.

At Hamlyns, we always advise clients on the most effective ways to optimise their pension contributions while navigating complex regulations and updates. This short guide explains the key aspects you need to know and how they might affect your retirement planning.

What is the Pension Annual Allowance?

Firstly, it’s important to establish that you usually need to be at least 55 years old (or 57 in 2028) before any pension funds can be accessed or withdrawn. Pension and tax rules can change, and investments can rise or fall in value, at a moment’s notice. Therefore, it’s always recommended to seek financial advice from professionals before making a decision. This guidance is for information purposes only and should not be considered personal advice.

The standard pension annual allowance for the 2025/26 tax year remains at £60,000.

This represents the maximum amount you can contribute to your pension scheme yearly without triggering a tax charge.

This allowance encompasses:

• Personal contributions
• Employer contributions
• Third-party contributions
• Basic-rate tax relief added by HMRC

It’s important to note that you can only receive tax relief on personal pension contributions up to 100% of your UK earnings (or £3,600 if greater). The amount of tax relief you receive will depend on your tax band and earnings. But it can mean that high contributions with low earnings may not benefit from full tax relief.

Different tax rates and bands, and rates of tax relief, apply to taxpayers based in Scotland.

Annual Allowance Differences for Higher Earners

For higher earners, the standard annual allowance may be reduced through tapering, or more specifically, the Tapered Annual Allowance (TAA).

In 2025/26, if your ‘threshold income’ exceeds £200,000 and your ‘adjusted income’ is over £260,000, your annual allowance is reduced by £1 for every £2 of adjusted income above £260,000.

For clarity:

• Threshold income: refers to your total taxable income minus personal pension contributions
• Adjusted income: your total taxable income plus employer pension contributions

The tapering can reduce your annual allowance to as little as £10,000 for those with an adjusted income of £360,000 or more.

Money Purchase Annual Allowance (MPAA)

If you’ve already accessed your pension pot(s) or have been in flexible drawdown, you’ll likely be subject to the Money Purchase Annual Allowance (MPAA) limitations for pension contributions.

The MPAA remains at £10,000 for 2025/26, meaning you can only contribute this amount per year into any defined contribution pensions from that point.

This reduced allowance applies once you’ve:

• Taken a lump sum from a pension
• Moved into flexi-access drawdown and started taking income
• Used flexible annuity options

Understanding whether you’ve triggered the MPAA is crucial before making withdrawal decisions, as it can severely restrict future contributions.

Managing Pension Contributions

Exceeding your annual allowance results in a tax charge, which effectively removes the tax relief on the excess contribution.

A pension tax charge is added to your income and taxed at your marginal rate, potentially pushing you into a higher tax bracket.

However, you can usually navigate this through:

Carry Forward Provisions

You may utilise unused annual allowance from the previous three tax years, potentially allowing contributions significantly above the standard £60,000 limit. This requires having been a member of a UK-registered pension scheme during those years.

Employer Contributions

Employer pension contributions can be particularly valuable, as they don’t attract National Insurance (NI) contributions and count as a business expense. Structuring remuneration packages to include pension contributions rather than salary can be tax-efficient.

Spousal Contributions

Contributing to a spouse’s or civil partner’s pension can be advantageous, particularly if they have an unused annual allowance or are in a lower tax bracket.

Professional Pension and Tax Advice When You Need It

Navigating the complexities of pension allowances requires careful planning. Our tax advisors and financial planning specialists can help you calculate your available annual allowance, review any unused allowances, develop a contribution strategy aligned with your retirement goals, and recommend tax-efficient approaches based on your personal circumstances.

Contact Hamlyns today to ensure you’re making the most of your pension contribution opportunities while remaining compliant with 2025/26 pension allowance limits.