How much can I pay into my pension?

Everyone knows that the more you save for the future, the better. But when it comes to your pension, there are a few limits that will affect your contributions. In this article, we'll explain all the annual UK pension contribution limits that you need to be aware of.

How much can I pay into my pension each year?

Once you've worked out how much money you need to save for the future, it can be tempting to increase your payments. Especially given there’s no hard limit on pension contributions – you can add as much as you like into your pot.

By contributing to your pension, you'll receive a 25% tax bonus on your contribution from the government. This applies to the self-employed – and higher and additional rate taxpayers can enjoy an even greater refund through their self-assessment tax return.

Why wouldn’t you up your payments? Well, while there’s no limit to how much you can contribute to your pension, there is a cap on how much tax relief you can get.

This cap is on pension tax relief is called the annual allowance

What is the annual pension allowance?

From the 2023/24 tax year onwards, you can get tax relief on pension contributions up to £60,000 or 100% of your income each tax year, whichever is lower.

Both these limits apply across all your pensions and include any contribution eligible for tax relief and the tax relief it generates. They both also deal in gross terms:

• When it comes to income, gross means before tax taken
• With pension contributions, gross means including the tax relief

This means if you have a salary of £30,000, your tax relief is capped at £30,000. But because the income limit includes added tax relief, the maximum contribution amount that you can make that attracts tax relief is £24,000. This is because with the £6k tax relief, you're reaching your income limit of £30,000.

If you hit your income limit, then you (through non-income contributions such as savings) or your employer can still make contributions up to the annual allowance of £60,000. But these additional contributions aren’t eligible for tax relief.

If you aren’t employed or earn under £3,600 annually then the most you can pay into a pension and receive tax relief is £2,880, with £720 of tax-relief added (totalling £3,600).

If your income is £60,000 or above, then £48,000 is the maximum amount you can contribute into your pension each year and receive tax relief – as you'll be receiving £12,000 of tax relief.

If you earn over £260,000 a year, you'll fall into the tapered annual allowance. For every £2 you earn above £260,000 each year, you’ll lose £1 from your annual pension allowance.

The minimum reduced annual allowance you can have in the current tax year is £10,000. This means that anyone with an income over £360,000 will have an annual allowance of just £10,000.

If you decide to contribute more than £60,000 across the year, then you'll need to pay tax on the amount you’ve gone over. This is known as the Annual Allowance Charge (AAC).

Can you backdate pension contributions?

In some cases, you can carry forward your unused annual pension allowance from the previous three years. This means you can go over your annual allowance and still receive tax relief on your contributions, up to a maximum of £140,000 (if you or your employer haven't paid into a pension at all for the last three tax years).

Backdating pension contributions is relatively straightforward, as long as you have had a pension open for the entire period – but there is a catch. You still won't be able to earn tax relief over other annual limit – 100% of your income for the year.

For example, if you earn £50,000 a year, that is the maximum you'll be able to add to your pension and still get tax relief – even if you haven't used up your allowance in the years prior.