General rule 

For pension contributions, there is an Annual Allowance (of £40,000 for 2018/19) which is the maximum one can pay into a pension scheme in a tax year.  If you (or your employer) don’t use all of the Annual Allowance, then you can carry forward unused Annual Allowance for up to three tax years – and so make pension contributions in excess of those years’ Annual Allowance. 

Reduction when taxable income is high  

If you have high levels of income – in excess of both taxable income of £110,000 and of Adjusted Income (taxable income plus Employer pension contributions) of £150,000 – then the Annual Allowance is reduced by £1 for every £2 that your Adjusted Income exceeds £150,000 – until it is reduced to £10,000 – so, the more you earn, then the less you can pay into your pension! 

What happens if you accidentally overfund your pension in a tax year? 

There are two ways you could do this in a year: 

  • Exceed your Net Relevant Earnings
    If one paypension contributions in excess of the higher of £3,600 and one’s Net Relevant Earnings (annual salary plus benefits-in-kind, plus any self-employment income), then no tax relief is given on the excessive pension contributions – and HMRC may allow a ‘refund of excess contributions lump sum’ to be paid back by the pension company.  
  • Exceed the Annual Allowance
    If one makes more contributions than the Annual Allowance allows, there is a‘annual allowance charge’ on the excess contributions – calculated at the taxpayer’s marginal rate of tax (although the pension contributions still do get tax relief).   

 So, it can be worth keeping a record of contributions made in each tax year, and available Annual Allowances to carry forward.