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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Pension contributions tax relief: limits

There are certain upper limits to the tax relief that can apply when you make pension contributions. You can usually get tax relief on contributions up to the higher of your UK relevant earnings or £3,600. However, there are further limits that operate in addition this. Here we look at these upper limits and how tax relief is clawed back if you breach them.

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In addition to the pension contribution limits related to your UK relevant earnings, as mentioned on our page Tax relief on pension contributions, there are further upper limits that apply, called the annual allowance and the money purchase annual allowance. Most people choose not to contribute above these limits.

The annual allowance should not impact on you if you are on a low income and only have modest pension savings. However, the money purchase annual allowance is much lower, so is something that people on low incomes might need to watch out for.

Annual allowance

There is an annual allowance of up to £60,000 (2023/24). Although you can claim tax relief on contributions up to the higher of your UK relevant earnings, the amount of tax relief you can keep is limited by the annual allowance.

Sometimes the annual allowance can be lower than £60,000. For those with adjusted income exceeding £260,000 and threshold income above £200,000, the annual allowance is tapered, at a rate of £1 for every £2 of income above £260,000.

If the increase in the value of your pension rights or your pension contributions in a tax year (including employer contributions) exceeds the annual allowance, there is a tax charge on the excess. The rate of the annual allowance tax charge is at your marginal rate of tax and so depends on the level of your taxable income.

In order to get full tax relief therefore, the amount paid into all your pensions by you or on your behalf (including contributions made by your employer), cannot exceed £60,000. In some cases you might be able to carry forward unused annual allowance from the previous three tax years, subject to certain conditions. We do not go into detail of the upper annual allowance limits here as they only tend to affect those on higher incomes.

There is more information on the annual allowance on GOV.UK.

Money purchase annual allowance

If you flexibly access money in a defined contribution or money purchase pension, the annual allowance drops to £10,000. This is known as the money purchase annual allowance (MPAA). Again, this figure includes contributions made by your employer. The idea is to stop people who have already accessed taxable amounts of their pension savings, recycling that money backinto a pension scheme (as the reinvestment can generate additional tax relief and build up a fresh entitlement to tax free cash and pension benefits).

As mentioned, the MPAA is much lower than the normal annual allowance and can therefore be more of a concern for those who are on low incomes.

When it applies

As long as you are under the age of 75, and meet the other basic conditions, you can still contribute to a pension after flexibly taking taxable amounts of pension savings. However, tax relief is limited to contributions of £10,000 a year gross.

Note, however, that the money purchase annual allowance does not apply in some situations including:

  • you have only taken out a ‘pension commencement lump sum’ (otherwise sometimes known as your 25% tax-free cash), or
  • where you have used the ‘trivial’ or ‘small pots’ pensions rules to fully cash in money purchase pension savings, or
  • where you have used your pension to purchase a retirement annuity that is either fixed or increases. (If your pension is used to purchase an investment-linked or flexible annuity, where your income could go down, then the MPAA will apply.)


Philip lives in England and has earnings of £20,000 in 2023/24, and no other income. He has a personal pension worth £35,000. He is 55 and, having developed some health problems, is no longer fit to continue his plumbing business. Philip has always been a keen photographer and thinks he can pursue this hobby as a new business, but he needs £15,000 to buy some more equipment to get himself up and running. He does not want to get into debt so is looking at accessing his pension.

He can take some of the £15,000 as a tax-free amount but will have to pay tax on some of it at 20% (given he is a basic rate taxpayer), meaning that to get £15,000 after tax, he will actually have to take out more than £15,000 from his pension. He plans to work for at least a further 10 years and is hoping, if successful, that he will be able to top up his pension savings again in future.

If Philip gets the money he needs out of his pension, his future pension contributions will be limited. If his new business venture is successful and he can then afford to pay more into his pension, he will find that his tax relief is restricted by the money purchase annual allowance. This means he can only now pay in £10,000 gross a year into his pension.

Requirement to notify

A further important point to note is that flexibly accessing money purchase pensions from one pot means you may have to notify any other pension providers you have savings with that you have triggered this MPAA.

When you flexibly access pensions for the first time, the pension scheme administrator must provide you with a statement which should:

  • confirm the date when you first flexibly accessed your pension
  • explain that the MPAA will apply in respect of relevant future pension contributions
  • explain that you have obligations to notify other pension providers of the money purchase annual allowance having been triggered.

To expand on the third point above, your obligation is to notify, within 91 days of receipt of the statement, any other pension schemes of which you are an ‘accruing member’ that you have triggered the MPAA. This means that all other pension schemes of which you are an active or contributing member must be notified – not just money purchase schemes. The simplest way of fulfilling the obligation is to pass on a copy of the statement itself.

Further, you have an ongoing notification obligation to notify any new pension plan providers that you have triggered the MPAA. If, for example, you get a new job and are automatically enrolled into the employer’s pension scheme, you would need to notify the scheme that you are liable to the MPAA – even if the total contributions by you and your employer are not likely to exceed the £10,000 contribution limit.

Technically, HMRC could charge you a penalty for failing to notify other pension providers that you have triggered the MPAA. We are not aware of HMRC applying this in practice, but the amounts are significant – an initial penalty of £300, together with daily penalties of up to £60 per day for continued failure.

Do therefore try to avoid falling foul of this by:

  • notifying any existing pension providers as soon as you can; and
  • trying to remember to notify any new pension providers – particularly if you get a new job and are automatically enrolled as above.

Further information about the reduced MPAA can be found on GOV.UK. Information on the notification requirements can be found in HMRC’s manual.

Lifetime allowance

Until recently, there was also a lifetime allowance (LTA), which imposed a tax charge where the overall value of a person’s pension savings exceeded £1,073,100. However, from 6 April 2023 the LTA no longer applies. 

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