More than 30,400 individuals exceeded their pension annual allowance during the 2024-25 tax year, marking a 20% increase from the previous year. The annual allowance, which is the maximum amount that can be contributed to pensions with tax relief each tax year, increased from £40,000 to £60,000 in April 2023.
The total value of pension contributions that surpassed the limit climbed from £505 million to £672 million, a rise of 33%. For higher earners, a tapered annual allowance can reduce this threshold to as little as £10,000.
Breaching the annual allowance means the excess money is added to an individual's income for that year and taxed at their normal rate of 20%, 40%, or 45%. This effectively cancels out any tax relief received on the excess contributions.
Common reasons for exceeding the allowance include large employer contributions or bonuses, pay rises in final salary pensions, triggering the Money Purchase Annual Allowance (MPAA) which reduces the limit to £10,000, and high earnings shrinking the limit for those with adjusted incomes over £260,000.