Pension planning for high earners: carry forward and the annual allowance
You've worked hard for the pay rise and the bonus. Now, HMRC says you can put less into your pension, not more.
It sounds bizarre, but for high earners it's the reality. Once your income goes above certain limits, your pension annual allowance starts to shrink. Pay in too much and you get a tax charge instead of tax relief.
There is some good news. Carrying forward unused annual allowance from previous years can often fix it. Earn high amounts for a long time though, and your pension input is severely restricted.
This guide explains the pension annual allowance, how the taper works, the two income tests that decide whether it hits you, and how to use carry forward to make the most of the allowance you have left.
| What is the pension annual allowance?
The annual allowance is the most you can pay into pensions each tax year and still get tax relief. For most people it's £60,000.
The annual allowance counts everything going in, not just what you pay:
Your own contributions, grossed up with tax relief
Your employer's contributions
Salary sacrifice and bonus sacrifice into a pension
For defined benefit schemes, the growth in your pension over the year
Go over it and you pay the annual allowance charge. The annual allowance tax charge is at your marginal rate and payable on the excess. For most high earners this is 45%.
The tax relief you hoped to receive is effectively clawed back. You also then have money in a pension where you must pay income tax on 75% of the withdrawals in retirement.
Contributing more than your allowance is a bad outcome.
There's one more limit to know. Your own contributions only get tax relief up to 100% of your UK earnings for the year. Employer contributions don't have this cap.
| What is the tapered annual allowance?
The tapered annual allowance is how the government limits pension tax relief for the highest earners. If both income tests are met (more on those below), your £60,000 allowance shrinks.
The rule is simple. For every £2 of adjusted income above £260,000, you lose £1 of annual allowance. It stops falling at £10,000, which you reach at £360,000 of adjusted income.
So the more you earn above £260,000, the less you can save into a pension tax-efficiently. That's exactly the point at which many people want to save more.
| Threshold income vs adjusted income: the two tests
The taper only applies if you fail both tests. Threshold income must be over £200,000 and adjusted income must be over £260,000. Always check threshold income first. If you're under £200,000, you keep the full £60,000, whatever your adjusted income is.
| Threshold income: the £200,000 gateway
Think of threshold income as your income without your own pension contributions. Roughly:
Start with all your taxable income: salary, bonus, dividends, rental profits, savings interest.
Take off your own pension contributions made through relief at source or personal pensions (the gross amount).
Employer contributions are not added. That's why threshold income is usually the lower of the two figures.
The salary sacrifice catch. If you sacrifice salary or bonus into a pension under an arrangement set up on or after 9 July 2015, it's added back. You can't sacrifice your way under the £200,000 line.
| Adjusted income: the £260,000 trigger
Adjusted income is your income with all pension contributions added in. Roughly:
Start with all your taxable income.
Add every employer pension contribution made.
| Why the order matters
The threshold income test protects people whose income only looks high because their employer pays big pension contributions. Your own personal contributions can bring threshold income back under £200,000. That can switch the taper off altogether.
| Worked examples
Sarah: caught by the taper
Sarah earns a £240,000 salary, plus an £80,000 bonus. She makes 5% salary sacrifice pension contributions from her salary and her employer contributes 10% of her salary to her pension and sacrifices 20% of her bonus (£16,000 arranged after 2015) to her pension.
Her P60 shows £292,000. She makes no personal pension contributions.
Threshold income: £320,000. That's over £200,000, so we check adjusted income.
Adjusted income: £292,000 + £52,000 employer contributions = £344,000. That's £84,000 over the limit.
Taper: £84,000 ÷ 2 = £42,000 lost.
Annual allowance: £60,000 − £42,000 = £18,000.
Total pension contributions were £52,000, so she's £34,000 over. Without carry forward, that's a £15,300 tax charge at 45%.
James: not caught at all
James earns £220,000 plus a £20,000 bonus, so £240,000 in total. He pays £42,000 gross into a personal pension. His employer pays £17,600 (8% of salary).
Threshold income: £240,000 − £42,000 = £198,000. That's under £200,000.
The taper doesn't apply. James keeps the full £60,000, even though his adjusted income is £264,500.
Both are high earners but a very different result. The detail matters.
| How carry forward works for high earners
Carry forward lets you use annual allowance you didn't use in the previous three tax years. For high earners it's often the difference between having a tax charge and not having one at all.
The rules:
Use this year first. You must use your full allowance for the current year before carrying anything forward.
Oldest year next. Unused allowance is used from the earliest of the three previous years first.
You must have been a member. You need to have been part of a UK registered pension scheme in each year you carry forward from. You didn't need to pay anything in.
Tapered years carry forward tapered amounts. If you were tapered in an earlier year, you carry forward what's left of that year's reduced allowance, not £60,000.
If you've flexibly accessed a pension and triggered the Money Purchase Annual Allowance (MPAA), carry forward can't be used for those contributions.
For 2026/27, you can look back to 2023/24, 2024/25 and 2025/26. The standard allowance was £60,000 in each of those years.
Back to Sarah. Say she only used £20,000 of her allowance in 2023/24 and wasn't tapered that year. She has £40,000 to carry forward. That covers her £34,000 excess, and the charge disappears.
Pension schemes only send a pension savings statement automatically when you go over the standard £60,000. If you're tapered, you may not get one. Keep your own record of your allowance and what went in each year.
More people are saying they'd rather live for today than bother saving and investing for tomorrow. I believe it's years of incentives being stripped away and tinkering, one Budget at a time.
| Carry forward strategies for high earners
Big bonus years. A one-off bonus can push you into the taper. Carry forward can allow a larger contribution that year.
Personal contributions to stay under £200,000. If you're just over the threshold, a personal contribution can take you under it. That brings back your full £60,000 and opens up carry forward on top.
Company directors. Employer contributions from your limited company aren't capped by your salary. With carry forward, a director who has been a member of a pension scheme and not made any contributions for the previous 3 tax years could contribute £240,000 in a single year, as long as it's justifiable as a business expense, threshold income is below £200,000 and no tapering applies in previous three tax years.
Don't lose the oldest year. Each April, the oldest year drops out. Unused allowance from 2023/24 is lost after 5 April 2027.
Plan before the year ends. Your adjusted income isn't final until the tax year closes. Leave room for late bonuses, dividends and investment income.
| What if you go over the allowance?
You pay the annual allowance charge on the excess, at your marginal rate. You report it on your self-assessment tax return.
You may be able to ask your pension scheme to pay the charge for you. This is called Scheme Pays. The scheme pays HMRC and reduces your pension in return. Conditions and deadlines apply, so check with your scheme early.
FAQs
Does my employer's pension contribution count towards adjusted income?
Yes. Employer contributions are added to adjusted income. They're not added to threshold income, unless they come from salary sacrifice set up on or after 9 July 2015.
Can I use carry forward if I'm tapered?
Yes. You can carry forward unused allowance from the previous three years on top of your tapered allowance. Any year you were tapered carries forward its reduced amount.
What counts as threshold income?
Broadly, your total taxable income from all sources, minus your own gross pension contributions. Salary sacrificed under arrangements made on or after 9 July 2015 is added back.
Does salary sacrifice reduce my threshold income?
Not for arrangements set up on or after 9 July 2015. The sacrificed amount is added back for the threshold income test.
What's the lowest my annual allowance can go?
£10,000. You reach it at £360,000 of adjusted income.
| The bottom line
If you earn over £200,000, your pension annual allowance isn't a fixed number. It depends on your income, your employer's contributions and what you didn't use in past years.
Get it right and carry forward can unlock tens of thousands in tax-efficient saving. Get it wrong and you could face a tax bill you didn't see coming.
Want to know where you stand? We'll work out your allowance and your carry forward for a fixed fee.
Risk warnings
This article is for general information only and is not personal advice. Tax rules can change, and their effect depends on your individual circumstances. The FCA does not regulate tax planning. Figures are for the 2026/27 tax year. The value of pensions and investments can fall as well as rise, and you may get back less than you put in. You cannot access your pension until at least age 55 (57 from 2028). Investments carry risk. The income and growth of your investments can go up and down.
Written on 13th November 2026
