As we move towards the end of the tax year, clients’ minds are often focused on ensuring tax allowances and exemptions are utilised. Pension allowances remain one of the more valuable and complex allowances and using them effectively makes a big difference to a client’s retirement. Simon Martin, Technical Development Manager, Aviva, addresses what clients need to be aware of when trying to maximise the generous tax relief provided by contributions to pensions and how they can ensure the maximum tax benefit is claimed.
Let’s first explore the allowances for individuals who are in accumulation and using pensions to fund retirement.
Most people have an annual allowance of £60,000, which can be contributed to a pension each tax year. Where the contribution is being made personally, the contribution, including tax relief, is restricted to the higher of:
- 100% of your UK taxable earnings or
- £3,600 gross contribution
This earnings restriction does not apply to employer contributions, which are made gross.
There are factors which can increase or reduce the amount a client is able to contribute and receive tax relief each tax year.
Carry Forward
Pension legislation allows pension members to carry forward unused allowances from the previous three tax years.
To qualify for carry forward, your client must have been a member of a UK-registered pension scheme in the earlier tax years. The contribution uses the current tax year first, then the carry forward is claimed from the oldest available tax year.
It’s important to remember that the contribution which includes tax relief on a personal pension, will still be restricted to 100% of their UK taxable earnings, even where a substantial carry forward is available.
Consequently, carry forward will be especially attractive for high-earning clients and business owners due to the opportunity to fund larger pension contributions.
Let’s look at an example to show how it works in practice.
Sarah earns £190,000 as a salary and wishes to make a gross pension contribution of £100,000; her previous contributions have been as follows:
| Tax Year | Annual Allowance | Gross Contribution | Available |
| 2025/26 | £60,000 | £0 | £60,000 |
| 2024/25 | £60,000 | £50,000 | £10,000 |
| 2023/24 | £60,000 | £40,000 | £20,000 |
| 2022/23 | £40,000 | £20,000 | £20,000 |
| Total | £110,000 |
Sarah has £110,000 available for a pension contribution, when carry forward is applied, and she contributes £100,000 gross. As this is lower than her total income, she will get income tax relief on the entire contribution.
Her contribution will first use £60,000 from the current tax year, £20,000 from 2022/23 and £20,000 from 2023/24. Therefore, the £10,000 excess in 2024/25 will remain unused and potentially available for future carry forward.
Her current and previous contributions have been made using the relief at source method, meaning she will need to claim higher and additional rate tax relief through her self-assessment tax return.
Where the contribution is being made gross by the employer, the employee does not need to have UK taxable earnings equal to or greater than the contribution. However, they do need to consider the available annual allowance and carry forward to avoid an annual allowance tax charge.
A contribution made by the employer will provide corporation tax relief to the company where the payment meets the wholly and exclusively rules.
The 2025/26 tax year has an interesting anomaly as the end of the tax year falls on the Easter weekend, so ensuring clients contribute in good times is even more important.
Whilst carry forward is going to be a great opportunity to potentially maximise contributions into a pension, there will be some occasions where an individual’s annual allowance is less than £60,000 in 2025/26.
Tapered Annual Allowance
High earners will have their annual allowance reduced if their adjusted income and threshold income exceed certain thresholds.
| Tax Year | Threshold Income Limit | Adjusted Income Limit | Minimum Tapered AA |
| 2025/26 | £200,000 | £260,000 | £10,000 |
| 2024/25 | £200,000 | £260,000 | £10,000 |
| 2023/24 | £200,000 | £260,000 | £10,000 |
| 2022/23 | £200,000 | £240,000 | £4,000 |
From the 2023/24 tax year onwards, for every £2 of adjusted income over £260,000, the annual allowance is reduced by £1 and tapers down to a minimum of £10,000.
An important planning point to remember is that each tax year is assessed in isolation. Therefore, even where an individual is tapered in the current year, they may have the opportunity to carry forward from previous untapered tax years.
Money Purchase Annual Allowance (MPAA)
The Money Purchase Annual Allowance applies where someone has flexibly accessed their defined contribution pension. This would usually be a withdrawal made via some form of flexible drawdown, though there is lots of complexity to the rules, which is important to understand.
Unlike drawing a flexible income, taking Pension Commencement Lump Sums (PCLS) from a defined contribution scheme will not trigger the MPAA.
Once the MPAA is triggered, the individual has a money purchase annual allowance of £10,000 for contributions to defined contribution schemes only. There is also no option to use carry forward from previous tax years once the MPAA applies.
The increased complexity of these allowances further demonstrates the need for and value of financial planning advice. Navigating clients through tax rules provides an opportunity to deliver great client outcomes.
We also need to consider the allowances available on death and when decumulating from a pension.
Lump Sum Allowance (LSA)
Following the removal of the Lifetime Allowance (LTA), we have seen the creation of the Lump Sum Allowance. Following its inception in April 2024, the LSA limits the amount of tax-free cash and/or tax-free element of an uncrystallised funds pension lump sum (UFPLS) you can take from your pension pot.
As with many pension rules, there are some anomalies and complexities. However, the LSA restricts most people to 25% of the pension fund to a maximum of £268,275, where no benefits have been taken and no lifetime allowance protections are in place.
Lump Sum & Death Benefit Allowance (LSDBA)
Alongside the LSA, the LSBDA was introduced when the Lifetime Allowance was removed in April 2024. The LSDBA restricts the total tax-free lump sum which can be paid during the lifetime of the member and on their death.
The standard LSDBA was set in line with the previous LTA at £1,073,100, though it may be higher for some clients who have previous LTA protection.
The following lump sum death benefits are not tested against the LSDBA
- Those paid from funds already in drawdown before 6 April 2024
- Those paid where death occurred on or after age 75
- Those not paid within 2 years of being notified of the death, where death was before age 75
Various types of payment from a pension can count towards the LSDBA, including PCLS, the tax-free element of an uncrystallised funds pension lump sum (UFPLS) and serious ill health lump sums. You will also need to include lump sum death benefits where an individual dies before their 75th birthday.
Lump sum death benefits paid from funds crystallised before 6 April 2024 do not reduce the LSDBA.
Any withdrawal above the LSDBA is taxed at the recipient’s marginal rate of income tax.
Transitional Tax-Free Amount Certificate (TTFAC)
Where an individual made a PCLS withdrawal before April 2024, their LSA and LSDBA will be impacted, with HMRC allowing two methods of calculation.
The default method is to reduce the LSA and LSDBA by 25% of the Lifetime Allowance (LTA) used when a withdrawal is made.
Where the actual PCLS was less than 25% of the LTA and evidence is available, a Transitional Tax-Free Amount Certificate (TTFAC) may increase the availability of the LSA & LSDBA compared to the default method of calculation. If a lump sum has been taken on or after 6 April 2024, there will be no option to apply for a TTFAC.
With the impending pension and IHT changes in April 2027, it is far less likely that pensions are going to be used as a means of intergenerational wealth transfer. Therefore, understanding the withdrawal position is more important than ever.
While the range of pension allowances can appear overwhelming, they offer financial planners a powerful way to add value through expert guidance. This complexity strengthens the role of advice, ensuring clients can navigate the rules effectively and maximise the benefits available to them.
About Simon Martin
Simon joined Aviva in 2025 as Technical Development Manager, bringing with him a wealth of experience from many years at Technical Connection and over two decades in the financial services profession.
A Chartered Financial Planner, Fellow of the Personal Finance Society, and passed the ATT taxation exams, Simon specialises in financial planning for small business owners, as well as inheritance tax, trusts, and estate planning. He has spent many years supporting financial planners with technical expertise—developing planning strategies and ideas designed to help deliver meaningful advice and value to clients.
Simon is a regular presenter at adviser events and frequently responds to complex technical queries. He also contributes to the industry through blogs, articles, and commentary on topical financial issues.
