How much can I contribute to a pension?

If you’re a UK resident and under 75 the general rule is you can contribute as much as you earn to pensions this tax year, effectively capped at £50,000.

This cap, known as the ‘annual allowance’, applies to your total contributions (including those made by your employer and the value of benefits built up in final salary pensions).

There are opportunities to pay more than £50,000, (see 'input periods' and 'carry forward' below), but also some traps to watch out for. In particular, if total contributions over two tax years exceed £50,000 you could face a tax charge (see 'input periods' below).

The earnings upon which you can base your contributions are known as Relevant UK Earnings. If you’re employed this is generally your salary plus any taxable benefits. If you're self-employed this is normally the profit you make for UK tax purposes.

If you have no earnings (maybe you’re retired, a child or not working), you can contribute up to £3,600 gross (£2,880 net) this tax year. Even though you may not pay tax, your contribution is still eligible for tax relief.

The exact amount you can contribute, and the tax relief you can receive, will depend on your circumstances. Tax reliefs and state benefits referred to are those currently applying. As with all rules, they are subject to change by the government in the future.

Input periods

If you have more than one pension this could affect you

Contributions to the Vantage SIPP always count in the tax year they are made, so if you make a contribution today, it will count against this tax year's allowance. Contributions to other pensions may be registered in the next tax year depending on how the scheme is set up (the pension input period). You should check this with your scheme provider before making a contribution.

This means contributions made last tax year to other pensions could count towards this tax year’s £50,000 allowance, restricting how much you can pay in now (protection exists for large contributions made before October 2010 and tested against the new £50,000 allowance).

If you make a contribution to a pension where the input period ends in the next tax year, you may be able to pay more this year (to another pension) but less next year.

Carry forward

Could you contribute up to £200,000 into a pension and receive full tax relief?

If you have unused annual allowance from the past three tax years, you may be able to use it this year, increasing your £50,000 allowance.

Your allowance for each year is treated as £50,000. If contributions measured against the allowance of each of the last three years totalled £10,000, £15,000 and £30,000 for example, you could carry forward £95,000 (£40,000 + £35,000 + £20,000) to use now on top of this year’s £50,000 allowance, making £145,000 in total.

Your allowance this year could be up to £200,000 (£50,000 carried forward from each of the last three years plus this year’s £50,000 allowance).

Your total contribution must be within 100% of your earnings to receive full tax relief. With tax relief of up to 50%, £200,000 in a pension could cost a high earner as little as £100,000.

Annual Allowance & Carry Forward Factsheet

For more information about the annual allowance and carrying forward unused allowance, download our easy-to-read factsheet.

Annual Allowance & Carry Forward Factsheet

Lifetime allowance

There’s a cap on the total value of all your pensions, currently £1.8 million. If the value of your pensions (including those in payment) exceeds the lifetime allowance when you take benefits or reach 75, you’re likely to incur a tax charge on the excess.

On 6 April 2012 the lifetime allowance is decreasing from £1.8 million to £1.5 million

Is your pension close to the lifetime allowance? Find out how fixed protection could help.

More about fixed protection & the lifetime allowance

Can my employer make contributions to my SIPP?

Your employer can make contributions by cheque and/or monthly Direct Debit. Employer contributions are paid gross (before tax and National Insurance), so do not receive basic rate tax relief. Download an Employer Contribution Form or call us on 0117 980 9926 for details.

The Vantage SIPP can also accept employee contributions which are deducted from your net pay and paid directly by your employer.

Important information

The pension and tax rules are subject to change by the government. Tax reliefs and state benefits referred to are those currently applying. Their value depends on your individual circumstances.