3. Annual allowance

You usually pay tax if savings in your pension pots go above the annual allowance - this is currently £40,000 a year.

You can top up your allowance for the current tax year (6 April to 5 April) with any allowance you didn’t use from the previous 3 tax years.

The allowance was £50,000 for tax years between 6 April 2011 and 5 April 2014. Use the annual allowance calculators to work out if you can top up your allowance.

Lower allowance if you get money from a pension pot

Sometimes it’s possible to keep paying in after you take money out of a pension pot - but you’ll pay tax on contributions over £10,000 a year.

That’s because your annual allowance drops to £10,000 for all defined contribution schemes you’re in.

The lower allowance is sometimes called the ‘money purchase annual allowance’. You can’t top it up with unused allowance from previous years.

When your annual allowance drops

Your annual allowance drops to £10,000 when you get:

It also drops to £10,000 in some other situations - your pension provider sends you a ‘flexible access statement’ to tell you when this happens.

If your allowance drops to £10,000 for one of your pension pots, you must tell other pension schemes you’re in within 13 weeks.

The year your allowance drops

Your allowance will be £10,000 in the first full year after you take money from your pension pot. Follow the guidance to work out your exact allowance in the year you take the money.

If you go over the £10,000 allowance

Your annual allowance also drops to £30,000 for all defined benefit pension pots you’re in. You can usually top this up with unused allowance from the previous 3 tax years.

Check how much annual allowance you’ve used

You need your pension statements to work out how much annual allowance you’ve used in a tax year - ask your pension provider for statements if you don’t get them automatically.

  1. Check statements for ‘pension input periods’ that ended during the tax year - pension input periods are set by your pension provider and don’t always match the tax year.

  2. Work out how much annual allowance you used in those pension input periods - what counts towards your allowance depends on the type of pension scheme you’re in.

Do this for all pension schemes you belong to - the total from all schemes is how much annual allowance you’ve used.

Type of pension scheme What counts towards the annual allowance
Defined contribution pension schemes - personal, stakeholder and most workplace schemes Total amount of contributions paid in by you or anyone else (including your employer and the government)
Defined benefit contribution schemes - some workplace schemes Any increase in the amount your pension provider promises to give you when you retire
Hybrid pension schemes The higher amount out of total contributions and any increase in the amount your pension provider promises to give you when you retire

If you had pension input periods starting before 14 October 2010 and ending in the 2011 to 2012 tax year you work these out differently.

Pay tax if you go above the annual allowance

You’ll get a statement from your pension provider telling you if you go above the annual allowance.

If you’re in more than one pension scheme, ask each pension provider for statements so you can work out how much you’ve gone above the allowance.

Use this information to fill in a Self Assessment tax return. Fill in the ‘Pension savings tax charges’ section - you’ll need form SA101 if you’re using paper forms.

HM Revenue and Customs (HMRC) uses your Self Assessment tax return to work out how much Income Tax you pay.

You can still claim tax relief for pension contributions on your Self Assessment tax return if you’re above the annual allowance.

HMRC doesn’t tax anyone who goes above the annual allowance in a tax year if they:

  • retired and started taking a pension because of serious ill health
  • died

If the tax is more than £2,000

You can ask your pension provider to pay HMRC out of your pension pot if the tax is more than £2,000.

You must tell your pension provider before 31 July if you want them to pay the tax for the previous tax year. You’ll still need to fill in a Self Assessment tax return.

If you’re paying tax because you went over the lower allowance of £10,000, your provider can only pay it from your pot if you would have paid more than £2,000 tax based on the full annual allowance of £40,000 (plus unused allowance from the previous 3 tax years).

Rates

The amount you went above the annual allowance is added to your taxable income. You pay Income Tax on taxable income at the tax rate that applies to you.