UK Workers Losing GBP 50,000: The Hidden Pension Rules You Need to Know

During the 2025-26 tax year, workers in the UK should note that there are two important but lesser-known pension regulations that could significantly reduce tax-free pension allowances: Tapered Annual Allowance (TAA) and Money Purchase Annual Allowance (MPAA).

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Tapered Annual Allowance (TAA)

You can pay up to an annual allowance of GBP 60,000 into your pension scheme without paying tax. However, for people with higher earnings, this amount is reduced if your adjusted income is over GBP 260,000 and your threshold income is over GBP 200,000. For each GBP 2 earned above GBP 260,000, your annual allowance is reduced by GBP 1, which will reduce your pension allowance to GBP 10,000 if you earn GBP 360,000 plus, which is a potential GBP 50,000 of tax-free pension savings.

Money Purchase Annual Allowance (MPAA)

The MPAA rule comes into effect when you start to flexibly access your defined contribution or money purchase pension, for example, by taking taxable income via drawdown. In doing this, your overall allowance for pension contributions in each tax year is reduced to GBP 10,000, so that individuals cannot simply make pension withdrawals and recycle that money back into their pension pots to claim additional tax relief.

What You Need to Do

If you exceed your pension allowance as previously mentioned, then you need to report the excess contributions on your Self Assessment tax return in order to avoid the penalties. High earners and anyone accessing their pension early need to know the rules to avoid unwanted tax charges.