There isn’t a limit on how much you can pay into your pension each year. However, there is a cap on the amount you can receive tax relief on from the government, and on how much you can pay into pensions over your lifetime without triggering additional tax charges.
Annual Allowance: You can get tax relief on your pension contributions up to 100% of your salary, or £40,000 in 2022/23 – whichever is lower. This is the total sum of any personal contributions, and tax relief received (including anything paid into workplace pensions, too).
If you pay more than your annual salary, or the £40,000 annual allowance, into your pension, your contributions will be subject to a charge (in line with income tax). However, you can carry forward any unused annual allowance from the previous three years, using this in addition to your current year’s annual allowance. This can be useful if you’re working and approaching retirement, for example, to increase the amount you have saved in your pension.
Money Purchase Annual Allowance (MPPA): Bear in mind that if you’re currently retired and drawing money from your pension, your annual allowance for pension contributions may fall to a maximum £4,000 a year, known as the money purchase annual allowance (MPAA). If you plan on withdrawing money from your pension and want to carry on contributing to it, it may be sensible to seek financial advice.
Your annual pension allowance may also reduce if your income exceeds £240,000, by £1 for every £2 of income over £150,000. The maximum amount your allowance may reduce by in these circumstances is £36,000, to £4,000. Find out more about the M
Lifetime Allowance: This is the limit on the value of your pension benefits you can receive in your lifetime without paying additional tax charges, and stands at £1,073,100 for 2022/23. If you save more than this into your pension (including all pensions you have) you’ll pay extra tax when you take the excess benefits from your pension. This tax charge may amount to 25% if you draw pension income, or 55% if taken as a lump sum, in addition to income tax at your marginal rate.