Watch the explainer · 1 min 30 s
The annual allowance, explained
1 min 30 s · Captions on · Official sources checked 30 September 2026
Watch on its own pageThe annual allowance is the most your pension savings can grow in a tax year before you have to pay tax. For a public service pension, what counts is the growth in the value of your pension, not the contributions you pay.
Since April 2023, the standard allowance has been £60,000 a year, and it covers all your pensions together.
To measure growth, your yearly pension is multiplied by sixteen, and any separate lump sum is added. The value at the end of the tax year is then compared with the start, after allowing for inflation.
That's why a large pay rise, such as a promotion, can push your growth over the allowance, especially if you have long service.
Anything over the allowance is added to your taxable income, and taxed at the rates that apply to you.
Unused allowance from the previous three tax years can be carried forward, if you were in a registered pension scheme in those years. And for the highest earners, the allowance can be tapered, down to a minimum of £10,000.
If you go over, you report it on a Self Assessment return, even if your scheme pays the charge. For 2025 to 2026, the online deadline is 31 January 2027.
To see whether the annual allowance could affect you, start with Remedy's free check at remedy.tax.
This guide works through the NHS scheme, with its sections, pay awards and administrators. The annual allowance itself is the same in every registered public service scheme: teachers', civil service, armed forces, police, fire and local government. Your Pension Savings Statement comes from your own scheme's administrator. Judges' service from 1 April 2022 is in an unregistered scheme, so it does not count towards the allowance.
What is the Annual Allowance?
The Annual Allowance is the maximum amount your pension savings can grow in a tax year before an annual allowance tax charge may apply. NHS staff need to be especially careful because defined benefit pension growth is not simply the amount deducted from your payslip. Pay rises, awards, extra sessions, and scheme transitions can all increase the Pension Input Amount.
Standard allowance
For the 2026/27 tax year before tapering.
Taper starts
Adjusted income test. The taper applies only if threshold income is also over £200,000.
Minimum tapered allowance
High earners can have much less headroom than the headline allowance.
Who should pay close attention?
Annual allowance issues often appear after a good career event: promotion, extra work, awards, or a catch-up in pension growth.
Consultant, GP, senior SAS, senior nursing, or leadership pay where pensionable pay is rising quickly.
Clinical Excellence Awards, extra programmed activities, waiting-list initiatives, or overtime, where they are pensionable.
A promotion, new consultant post, return from leave, or jump from LTFT to full-time work during the tax year.
Mixed 1995/2008 and 2015 scheme membership, McCloud remedy statements, or split Pension Savings Statement figures.
Private practice, locum, partnership, or other pension saving outside the NHS scheme.
Income close to the taper gates, especially where salary sacrifice, employer contributions, or other taxable income changes the calculation.
McCloud and the transitional remedy
If you moved from the 1995 or 2008 legacy scheme to the 2015 scheme, you may be in scope for the McCloud/Sargeant remedy. For the remedy period (1 April 2015 to 31 March 2022), your pension entitlement is treated as if it remained in the legacy scheme. Your administrator (NHS Pensions, the Scottish Public Pensions Agency or HSC Pension Service, by nation) issues remediable Pension Savings Statements for affected years, and annual allowance calculations for those years may need to be revisited. If your employer or scheme has not yet issued a revised statement, contact them proactively before finalising any carry-forward or charge calculations.
The four-part annual allowance check
Estimate your Pension Input Amount
For NHS defined benefit schemes, the best starting point is the Pension Savings Statement. Contribution totals alone can understate the real pension growth because the HMRC method looks at the increase in pension benefits.
Check whether tapering applies
Tapering needs both tests to be met: threshold income over £200,000 and adjusted income over £260,000. If your threshold income is £200,000 or less, you are not tapered, however high your adjusted income. If both are met, your allowance falls by £1 for every £2 of adjusted income over £260,000, to a minimum of £10,000. Adjusted income includes the pension savings your employer made for you.
Apply carry forward in the right order
You use the current year allowance first, then unused allowance from the previous three tax years, starting with the earliest. You can only carry forward from a year in which you were a member of a registered pension scheme at some time. If carry forward covers the whole excess, no charge is due and you do not need to tell HMRC.
Work out the charge and payment route
Any excess is added to your taxable income and taxed at the rate or rates that apply to you. There is no fixed rate, and a large excess can fall across more than one tax band. You report it on Self Assessment and can pay it yourself, or through Scheme Pays, where the scheme pays and your future pension is reduced. The scheme must pay if the charge is over £2,000 and your growth in that scheme was above the standard allowance, and you elect by 31 July in the year after the tax year ends (for 2025/26, 31 July 2027). Otherwise Scheme Pays is only there if the scheme offers it voluntarily.
How the Pension Input Amount is calculated for NHS defined benefit schemes
For defined benefit pensions like the NHS scheme, the Pension Input Amount is not your payslip contribution deductions. HMRC measures the growth in the capital value of your pension rights during the tax year.
The formula
PIA = (16 × closing pension + closing lump sum) − (16 × opening pension × CPI factor + opening lump sum × CPI factor)
The opening value is increased by CPI inflation over the 12 months to the September before the tax year starts, so only growth above inflation counts. In a high-inflation year this increases the opening value, which reduces the measured PIA, sometimes significantly. If the closing value is lower than the uprated opening value, the PIA for that scheme is nil, not negative.
1995 section
The automatic lump sum is added to both the opening and closing values. It is not multiplied by 16. NHS Pensions says the lump sum applies to the 1995 section only.
2008 and 2015 sections
No automatic lump sum, so the PIA comes from the pension alone: the pension × 16 at the end of the year, less the pension × 16 at the start increased by CPI. From 6 April 2023, if you have both a legacy and a reformed section for the same year, a fall in the legacy section reduces the reformed section's figure, but not below zero.
Multiple pension schemes
The allowance covers all your pensions together: NHS pension, AVCs, and any private pension or SIPP. The pension input amounts from every registered scheme you belong to are added together and tested against your annual allowance. Each scheme only reports its own growth, so ask each provider for figures.
Documents and figures to gather
The free check works from whatever you have. Upload your pension statements and payslips: the statement gives the figure, and we check it against your pay.
Requesting your Pension Savings Statement: your scheme must send one by 6 October after the tax year only if your growth in that scheme was above the standard annual allowance. If your allowance is tapered, or you have other pensions, you can owe a charge on less growth and not be sent one: ask your scheme administrator for it. For the NHS that is NHS Pensions in England and Wales, the Scottish Public Pensions Agency in Scotland, and HSC Pension Service in Northern Ireland. If you are in scope for the McCloud remedy, the remedy years have their own remediable statement.
Pension Savings Statement: opening and closing pension, lump sum where relevant, and scheme split if shown.
Recent payslips: pensionable pay, employee pension deductions, employer contributions where shown, and year-to-date figures.
P60 and tax return information: total taxable income, private practice income, partnership drawings, and other pension contributions.
Carry-forward history: unused allowance, previous PIA figures, and your membership dates (a year counts only if you were in a registered pension scheme at some point in it).
Scheme Pays history: previous annual allowance charges split between legacy and 2015 sections, plus election dates.
Employment changes: promotion letters, CEA awards, extra sessions, LTFT changes, maternity/parental leave, or backdated pay awards.
Watch-outs that change the answer
Threshold income and adjusted income: Salary sacrifice, employer pension contributions, private income, and other pension saving can change whether tapering applies.
Defined benefit growth: For NHS pensions, the HMRC calculation uses the growth in pension benefits. Your employee contributions are important, but they are not the whole PIA calculation.
1995 scheme lump sum: The automatic lump sum can matter when working out capital value changes for legacy scheme sections.
LTFT and mid-year WTE changes: A full-time equivalent salary can overstate or understate the position if you changed working pattern during the year.
If you may have a charge
Check whether carry forward reduces or removes the excess before assuming there is a tax bill. You can only use carry forward after using the current year allowance.
If a charge remains, report it on Self Assessment, then compare paying it yourself with Scheme Pays. Scheme Pays can avoid an immediate cash cost, but it permanently reduces your future NHS pension, and NHS Pensions adds interest until you retire.
Keep an eye on Scheme Pays deadlines and ask for professional advice where figures are large, tapering is involved, or you have multiple income sources.
Official guidance and related resources
GOV.UK annual allowance
The allowance, the taper tests, statements, and reporting the charge.
HMRC Pensions Tax Manual: defined benefit pension input
How the opening and closing values are worked out, including the CPI uplift.
GOV.UK tapered annual allowance
HMRC guidance on threshold income, adjusted income, and tapering.
GOV.UK carry forward checker
Official guidance on unused annual allowances.
HMRC Pensions Tax Manual: carry forward
Technical rules for applying previous-year allowances.
HMRC Pensions Tax Manual: Scheme Pays
Mandatory Scheme Pays rules and eligibility.
HMRC Scheme Pays deadlines
Deadline guidance for annual allowance charge elections.
Key annual allowance dates
Tax year ends
5 April
Automatic Pension Savings Statement, if growth in that scheme was over the standard allowance (later if employer data was late)
By 6 October following the year end
Register for Self Assessment if not already registered
5 October following the year end
Self Assessment filing and payment deadline
31 January following the year end
Mandatory Scheme Pays election deadline
31 July in the year after the tax year ends (for 2025/26, 31 July 2027; McCloud remedy increases, 6 July 2027)
Scheme Pays deadlines can vary, including where a statement arrives late. Always verify against current HMRC guidance and your scheme's own member guide.
Related guides
These related guides cover the next questions that usually come up after this topic.
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This guide is for general education only. It is not financial, pension, tax, or investment advice.