What is the pension annual allowance?
The annual allowance is the maximum that can be paid into your pensions each tax year with tax relief — currently £60,000, or 100% of your relevant UK earnings if lower. Unused allowance from the previous three tax years can generally be carried forward.
It covers everything going in: your contributions, your employer's, tax relief, and for defined benefit schemes the deemed value of the increase in your promised pension.
Two restrictions cut it down. The tapered annual allowance reduces it for high earners, on a sliding scale down to a floor. The money purchase annual allowance replaces it entirely once you have flexibly accessed a defined contribution pension, and carry forward is not available against it.
Exceeding the allowance produces a charge at your marginal rate, reported through self assessment, though schemes can pay it in some circumstances. Non-earners can still contribute a small amount each year and receive basic rate relief.