How much can I pay into my pension? Heritage Financial

How much can I pay into my pension?

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    If you’re asking yourself this question, then you clearly take your financial future seriously, for which we salute you!

    Technically there is no limit to the amount that you can pay into your pension, but contributions beyond your annual pension allowance will not be eligible for tax relief and will incur an annual allowance charge.

    In this article, we’ll take a look at the valuable tax relief available on both a Defined Contribution pension scheme (i.e. private pension) and a Defined Benefit pension scheme (i.e. final salary pension). This will hopefully answer your questions on how much you can pay into your pension.

    For more tailored advice on pensions and retirement planning, please contact the experts at Heritage Financial Planning.

    What is tax relief on pensions, and why is it important?

    One of the biggest advantages of saving into a pension is that your contributions can benefit from tax relief. This is essentially free money, designed to incentivise people to save for retirement and reduce the burden on the state pension.

    Your pension provider will automatically add the tax relief to your contribution at the highest rate of income tax that you pay. If you are a Basic Rate taxpayer, this means you will receive tax relief at 20%. If you are a Higher Rate taxpayer or an Additional Rate taxpayer, it gets even better. Tax relief will be paid at 40% and 45%, respectively.  

    For Basic Rate tax relief, for every £1 that you put in, this becomes £1.25 (as £1.25 taxed at 20% = £1).

    In other words, this is like having a 25% boost to every contribution!

    So, if you contribute £100 to your pension, with tax relief, the contribution becomes £125! This is one of the biggest reasons why pension savings schemes are one of the best saving vehicles for retirement planning.

    invest into pension

    What is the pension annual allowance?

    The standard annual pension allowance is the lower of either £60,000 or your relevant earnings.


    John is employed, and his salary is £30,000, which means his pension annual allowance is also £30,000. John receives a pay rise in the subsequent tax year, and his salary increases to £70,000. Therefore, his annual allowance is capped at £60,000.

    If your pension contributions exceed your annual allowance, then you will incur an annual allowance charge in line with the marginal rate of income tax. This tax charge effectively negates the tax relief benefit.

    What are relevant UK earnings?

    ‘Relevant earnings’ include income from employment, such as salary and bonuses. It also includes self-employed income.

    It’s important to also understand what does not count towards your relevant earnings, including rental, dividend, pension and retirement income.

    Pension Annual Allowance and Defined Contribution (DC) pension schemes

    If you only have DC pensions, the calculation is relatively straightforward. It is simply the gross amount you have paid into any personal pension pots plus any contributions made to your workplace pension scheme.

    If you are unsure of the total, contact your pension provider, who should be able to supply this information easily.

    Unsure of what type of pension is best for you? Read our helpful blog – Which is the best pension option to take? Include link once published

    Can I carry back my unused annual pension allowance from previous years?

    If you are lucky enough to have a large sum in the bank, you receive a windfall, or you are due to receive a large bonus from work, then it is possible to make a larger contribution.  This is known as ‘carry forward’.

    Carry forward allows you to utilise your unused allowances from the three previous tax years, as well as the current tax year. Let’s see how this works in practice.


    Tom’s salary this year and the previous three years is £100,000 per annum. His total pension contributions were £20,000 for this tax year, as well as the three previous tax years.

    Tax Year2020/20212021/20222022/20232023/2024
    Annual Allowance£40,000£40,000£40,000£60,000
    Tom’s contributions£20,000£20,000£20,000£20,000
    Unused allowance£20,000£20,000£20,000£40,000

    Using this example, he can carry forward the unused allowance of £60,000 for the previous three tax years, as well as £40,000 from the current tax year, to make a total carry forward gross pension contribution of £100,000. This calculation takes into account the increase in the annual allowance to £60,000 from £40,000 in 2023/24.

    One of the rules that is often misunderstood is that you must earn at least the same amount as the amount you wish to contribute. If Tom’s income was £70,000, then this would be the maximum amount he could carry forward. You must also be a member of a registered UK pension scheme.

    This can be a complex area, so if you are considering a carry-forward contribution, it is wise to speak to an experienced financial adviser beforehand.

    Annual Pension Allowance and Defined Benefit (DB) Pension Schemes

    Working out the annual allowance for a Defined Benefit pension, such as an NHS pension, is much more complicated than for a DC pension. Unfortunately, it is not simply the total contributions paid in by you and your employer. 

    There are some useful examples of how to calculate the annual allowance on DB pensions on the website. In our accompanying YouTube video, there is also a specific example of how to calculate the annual allowance for a DB scheme.

    Essentially you need to calculate the annual pension input amount that your scheme may give you. The problem with this is that it is backwards-looking and only tells you about the previous year. 

    It is possible to calculate the pension input amount manually by calculating the opening and closing balance. To do so, you need to know the scheme’s accrual rate, your opening and closing salary and the rate of CPI/RPI. If you are struggling with the calculation, it’s best to talk to an experienced financial adviser.

    Can I receive pension tax relief if I am retired or have no relevant earnings?

    If you are retired, unemployed or a homemaker, then you have no qualifying earnings. However, this does not disqualify you from making a pension contribution and benefitting from the all-important pension tax relief.

    The rules allow you to pay £2,880 into your pension, upon which 20% tax relief will be granted, which will increase the contribution to £3,600.

    This is effectively £720 free money which we find very few people are aware of!

    It is not uncommon for those with savings in an ISA to redirect these funds to a pension to benefit from tax relief. In addition, we often see the breadwinner of a family make a contribution on behalf of their spouse or partner, who may be raising a family, for example. 

    Can I pay into my child’s pension?

    You can also make this contribution towards your children’s pension. With such a long investment horizon, just making a small contribution for a few years can make the numbers significant.

    However, you have to bear in mind that it could be 50+ years before your child sees the money. You might say this is a good thing as it would stop them from blowing it when they are young. On the other hand, you could argue it may deprive them of the capital when they need it most, such as getting on the property ladder. 

    Can I pay into my pension if I take an income from my pension?

    If you take flexible income or benefits from your pension pot, then you will trigger what’s known as the ‘Money Purchase Annual Allowance’. This means you can only put £10,000 into your pension pot. This mechanism exists to stop people simply taking money out of their pensions and then making a contribution to benefit from the tax relief again. 

    If you only take your tax-free cash or you are in receipt of Defined Benefit or annuity income, then the usual annual allowance rules will apply.

    How much can I contribute if I run my own business?

    If you run your own business through a limited company, then paying into a pension from the business can be very tax-efficient.

    The contribution can reduce the company’s taxable profits, which in turn reduces your corporation tax bill. If your spouse or partner is involved in the business, then it may also be possible to make an employer pension contribution for them.

    For the contribution to qualify as an allowable expense, it must pass the ‘wholly and exclusively’ test. If you are considering a contribution from your business for either yourself and/or another, then it is always important to check this with your accountant to avoid falling foul of HRMC.

    Unlike personal contributions, there is no limit on the amount the company can pay into your pension if it meets the test described above. Therefore, assuming you have made no pension contributions in the three previous tax years, it could be possible to make a £180,000 lump sum pension contribution.

    Pension contributions and high earners

    If you are fortunate enough to have an adjusted income above £260,000, then your annual allowance will be reduced by £1 for every £2 over this threshold until you have a minimum tapered annual allowance of £10,000.

    If you fall into this category, there are other complex rules that apply, so it’s wise to seek professional advice.

    How do my employer contributions affect my annual allowance?

    When working out your unused annual allowance, you should take into account both your personal contributions as well as any contributions made to your employer’s pension scheme.

    Can you reduce your income tax if you pay more into your pension?

    If your employer operates a ‘salary sacrifice’ pension scheme, this means your employer agrees to make additional pension contributions on your behalf in exchange for reducing your salary.

    This has the dual benefit of artificially reducing your taxable income, which could be very important if you are on the cusp of the Higher Rate tax threshold or if your income is above £100,000 and the 60% tax trap’.

    If the contribution is made through a salary sacrifice arrangement, pension contributions are free of National Insurance contributions. In some cases, your employer may agree to pass on this saving in the form of a bigger contribution.

    Is there a maximum amount you can contribute to your pension yearly?

    The pension annual allowance is the lower of £60,000 per year or your relevant earnings. In some cases, you could have a reduced annual allowance, such as if you are retired, have no relevant earnings, or have triggered the ‘money purchase annual allowance’ (see above).

    Can I make pension contributions past retirement age?

    Although there is no age restriction when it comes to contributions, the contribution will not benefit from tax relief beyond age 75. Furthermore, many pension schemes do not allow you to make a contribution past this age.

    Contact us for advice on pensions

    Heritage Financial Planning has over three decades of experience in pension and retirement planning. To speak to one of our friendly and knowledgeable family team, please fill in our contact form, and we’ll be in touch.

    Alex Norman-Jones​

    Alex Norman-Jones​

    I am one of the founders of Heritage and I am highly motivated to deliver bespoke financial planning solutions to my clients.

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