How Much Can I Contribute to My Pension to Maximise My Allowances?

What’s the Annual Allowance for Pension Contributions?

As of the 2023/24 tax year, the standard annual pension allowance is:

• £60,000 per year

This includes:

• Personal contributions
• Employer contributions
• Third-party contributions (e.g. by your company)

If your net relevant earnings are lower than £60,000, then your contributions are capped at your earnings. For example:

• If you earn £20,000, you can contribute up to £20,000 gross personally

But there are exceptions and enhancements available if your income is higher or you haven’t used up allowances from previous years.

What If You Earn Over £260,000?

If your adjusted income (total income + pension contributions) exceeds £260,000, your allowance starts to taper down. For every £2 above £260,000, your allowance reduces by £1, down to a minimum of £10,000【130†source】.

So:

• Someone earning £300,000 may have a reduced allowance of £40,000

This is why income planning is critical, you might unintentionally breach your limit and face a tax charge.

Employer Contributions: Different Rules Apply

If you run a company, you can make employer pension contributions without being limited by your personal earnings.

• Your company can contribute up to £60,000 (or more with carry forward provisions)
• You get corporation tax relief on the amount
• It doesn’t count toward your personal net relevant earnings

This makes pensions an ideal strategy for profit extraction and business owners planning for retirement.

Using Carry Forward to Boost Contributions

Carry forward allows you to use unused annual allowances from the previous three tax years. That means you could contribute significantly more in one tax year — potentially up to:

• £60,000 (current year)
• £60,000 unused from 2023/24 and 2024/25, together with £40,000 unused from 2022/23
• Up to £220,000 total if eligible

To qualify:

• You must have been a member of a UK-registered pension scheme during those years
• You must use the current year’s allowance before accessing carry forward
• You must have sufficient income to support the contribution

Personal vs. Employer Contributions: Which Is Better?

Personal Contributions:

• Limited by net relevant earnings
• Eligible for income tax relief at your marginal rate

Employer Contributions:

• Not restricted by salary
• Eligible for corporation tax relief
• Do not affect your personal tax position

Example: Maximise Allowance as a Company Director

Sophie is a company director earning £100,000 salary and £50,000 in dividends. Her business is profitable and she wants to save tax.

Her accountant recommends:

• Employer pension contribution of £60,000 (full allowance)
• Uses carry forward for the last 2 years: £120,000 more

Total contribution = £180,000

• Saves £45,000 in corporation tax (25%)
• Builds tax-free pension wealth
• Avoids income or dividend tax

What Happens If You Exceed the Allowance?

Any amount over your available annual and carry forward allowance:

• Triggers an income tax charge at your marginal rate (20%, 40%, or 45%)
• Must be declared on your self-assessment return

If the charge is over £2,000, you may be able to request your pension scheme pays it via Scheme Pays.