The Contribution Creep: When Pension Top-Ups Start Owing Tax in 2026/27

Most people who breach the pension annual allowance don't find out from a letter. They find out from an accountant, a tax return, or a slightly panicked call to their pension provider in April. The allowance is one of those limits that punishes inattention rather than extravagance — you don't have to be rich to trip it, you just have to be someone whose pay quietly grew while their pension contributions grew with it.

So this is less of a warning and more of a checklist. Set aside twenty minutes, dig out the paperwork, and let's see where you stand.

The number that has stopped moving

The annual allowance has been £60,000 since the 2023/24 tax year, and there's nothing in the 2026/27 rules to suggest that's changing. On its own, that sounds generous. For a higher-rate employee on a decent workplace scheme, it isn't quite as roomy as it looks — because the allowance counts every contribution into your pension, not just the ones you make yourself.

Add up your own contributions, your employer's contributions, and anything paid in by someone else on your behalf, and you have your total. A 10% employer contribution on an £80,000 salary is £8,000 before you've put a penny in yourself. Do that in a year with a bonus, and a generous salary sacrifice arrangement, and £60,000 gets closer than you'd think.

Things that don't count: your State Pension, your ISA, and your Lifetime ISA (which has its own separate cap). Money purchase and defined benefit schemes are counted differently, which we'll come to.

Where the ceiling actually drops

There are two ways the £60,000 shrinks, and the first one catches people who would never describe themselves as high earners.

The taper. If your adjusted income is above £260,000, your allowance reduces by £1 for every £2 above that threshold, bottoming out at £10,000 once adjusted income hits £360,000. There's also a second test — threshold income above £200,000 — which has to be met before the taper applies at all. The two figures sound similar and are calculated differently, which is exactly why they trip people up. Broadly, threshold income looks at your income before pension contributions, adjusted income looks at it after, and both include things like employer pension contributions and salary sacrifice arrangements. If you're anywhere near these numbers, get the arithmetic checked properly rather than relying on a rough guess.

The money purchase annual allowance. If you've flexibly accessed a defined contribution pot — taking an income drawdown payment, or cashing in a chunk — your allowance for further contributions drops to £10,000 for good. Not for one year. For every year afterwards. Plenty of people trigger this at 55, go back to work, and then get a nasty surprise when their new employer starts contributing.

Carry forward: the bit that saves people

If you do go over, you're not automatically writing a cheque. Unused allowance from the previous three tax years can be carried forward — so for 2026/27, you're looking back at 2023/24, 2024/25 and 2025/26.

Two conditions. You must have been a member of a registered pension scheme in each of those years (membership, not contributions — being in a scheme with no money going in still counts). And you have to use the current year's allowance first, then the oldest carry-forward year, working forwards.

This is why a one-off spike — a bonus sacrificed into the pension, a redundancy payment, a big final-year contribution — usually isn't a problem. It's the second or third consecutive year of high contributions that causes the damage, because the buffer has already been spent.

What the charge actually costs

The excess contribution isn't refunded. Instead, the amount over your allowance is added to your taxable income for the year and taxed at your marginal rate. For a 40% taxpayer, £10,000 over the limit means roughly £4,000 of tax. At 45%, it's £4,500.

You report it through Self Assessment, so if you're not already in the system you'll need to register by 5 October 2027 for the 2026/27 year, with the tax due by 31 January 2028. There's also something called scheme pays, which lets larger charges be settled from the pension itself rather than your bank account — worth asking your provider about if the bill is sizeable.

A six-step check for 2026/27

1. Find your pension input amounts. Every scheme must tell you this if you ask. Dig out the figures for 2023/24, 2024/25 and 2025/26 and note how much allowance went unused in each.
2. Project this year's total. Add your contributions so far, your employer's, and anything scheduled before 5 April 2027. Include a bonus if one's coming and it's going into the pension.
3. Test for the taper. If your income is anywhere near £200,000 or £260,000, work out both threshold and adjusted income properly. This is where an adviser earns their fee.
4. Check whether the MPAA applies. Have you taken a flexible drawdown payment from any pot? If yes, your ceiling is £10,000, not £60,000, and carry forward doesn't help.
5. Do the subtraction. Current allowance plus unused carry forward, minus projected contributions. If the answer is negative, you have decisions to make.
6. Adjust before April, not after. Salary sacrifice elections, bonus timing and extra top-ups can all be reshaped in February and March. They can't be reshaped in May.

The quiet traps worth knowing

Defined benefit schemes are valued by a different method — usually the increase in your accrued pension over the year, multiplied by a factor set by HMRC. A promotion in a final salary scheme can produce a pension input amount well above what the payslip suggests.

Salary sacrifice is generally good news for the allowance maths (it lowers your taxable salary, which helps on both taper tests) but it does reduce your contractual pay, which matters for mortgage applications, maternity pay and redundancy calculations.

And finally, watch the timing of a bonus sacrifice across a tax year boundary. Paying it in March rather than April is a one-month decision with a five-figure consequence.

The annual allowance isn't designed to catch anyone out. It just doesn't send reminders. Treat this as yours.