Tax Year End Planning Ahead of Budget Pension Annual Allowance

There have been several rumours of changes to Pensions Annual Allowance in the coming Autumn Budget 26^th November 2025.

The Pensions Annual Allowance (AA) is the maximum amount both you and your employer can pay in gross to pensions schemes each year.  This is limited to the lower of:

• Your earnings
• £60,000 pa

If your salary is £50,000 pa, the maximum amount both you and your employer can pay in gross to pensions schemes each year is £50,000.

If your salary is £80,000 pa, the maximum amount both you and your employer can pay in gross to pensions schemes each year is £80,000.

Risk of Change to Annual Allowance?

Usually, we would not expect a change in the AA until the start of a new tax year, so that it does not penalise those that have already invested in pensions this tax year but also giving time for pension companies to adjust their systems.  That said, It was not that long ago that AA allowances were different:

• 2022 to 2023 = £40,000 pa.
• 2015 to 2016 = £80,000 for 1 year only due to Pension Input Period Changes.
• 2013 to 2014 = £50,000 pa.

This means that the Treasury is open to changing annual allowances and indeed has changed it a number of times in the last 12 years alone. 

We even had tax year 2015/16 where it was changed mid-tax year to allow company pension scheme ‘pension input periods’ to amended from company trading year to the tax year.  This meant that we had a doubled up annual allowance as at 8 July 2015.

This tells us that the precedent has already been set for the Annual Allowance to change and even be changed mid-tax year.

If you can, try and accurately forecast your gross earnings for this tax year April 25 – April 26 and then make the maximum combined employer and employee pension contributions before the Autumn Budget. 

Carry Forward of Unused Annual Allowance

You may be aware but if you have used up the current year’s AA, you can go back up to 3 years to use up any unused AA.  Do it now – what if carry forward is abolished overnight or indeed by the end of the tax year? 

We do not have the ability to carry forward unused ISA allowances or capital gains tax allowances, the Chancellor may decide to pull this facility in the Autumn Budget.

Other Points to Consider:

• Non-earners, including pensioners below age 75 and even children can get tax relief on pension contributions even if they are non-taxpayers.  Maximum gross contribution £3,600 pa (£2,880 net before basic rate tax relief is added).  Use it or possibly lose it.
• Flexible Access Drawdown:  Remember if you have drawn down some of the taxable part of your pension fund (exclude tax free cash lump sum), you have a reduced Money Purchase Annual Allowance of £10,000.  Use it or possibly lose it, could the Chancellor reduce this back to £5,000 pa or even abolish it?
• Beware High Earners:  Tapered annual allowance restrictions if you Adjusted Income (Earned Income + Benefits + Pension Contributions) exceeds £260,000, you will have your £60,000 annual allowance reduced by £1 for every £2 adjusted income in excess of £260,000. 

We are not saying changes will come, but we suspect there will be some changes to the tax privileges and allowances for pension schemes.

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