Pensions Annual Allowance (AA)

Published / Last Updated on 17/05/2023

Pension Annual Allowance (AA) - Maximum Yearly Pension Contributions

The AA is the maximum amount or equivalent amount that can be invested pension schemes for an individual during any one tax year.  This annual allowance amount is calculated in different ways for different schemes

  • Money Purchase (investment linked) Pensions = the gross total amount (after tax relief) paid in by both you and your employer.
  • Defined Benefit (Final Salary or Career Average Salary) Pensions = a complex calculation to work out the equivalent amount.

Gone are the pecentage of earnings figures and other complex calculations based upon your age and salary as a measure of the maximum you can pay into a pension. 

Broadly speaking, you can invest an amount equal to your yearly salary each year in a pension fund up a maximum yearly limit i.e., the Annual Allowance. 

The current maximum you can pay into a pension for tax year 06/04/2023 to 05/04/2024 is the lower of:

  • Your yearly earnings or £60,000.00 pa.

You may be able to pay in more than £60,000.00 pa if you have unused allowances from the previous 3 years tax years. 

Your employer can technically invest more than the annual allowance, although this may need justifying if you earn £6,000 pa and have £100,000 paid into a pension fund by your employer, particularly business controllers and company directors.  HMRC uses expects this to be within the usual remuneration levels for someone in that role and entirely for business reasons.

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