How much can I save into my pension?

For most people, pensions are the best way to save for retirement, thanks to generous tax relief and tax-free growth over the long term.

We reveal how much you need to save into a pension to ensure you have enough money when needed.

There’s a limit to how much you can save in any pensions. There is a cap of £60,000 on how much you can contribute to a pension in a single year, known as your annual allowance.

While the lifetime allowance was abolished in April 2024, there are new limits on the amount of tax-free lump sums and death benefits that can be taken from pensions.

These are known as the lump sum allowance (LSA), which is £268,275 and the lump sum and death benefit allowance (LSDBA), which is £1,073,100.

What is the annual pension allowance?

The most you can pay into pensions in a single tax year, and still receive tax relief, is either £60,000 or 100% of your qualifying earnings (whichever is lower).

It may sound odd to pay your entire earnings into a pension, but it can happen.

This is a common pitfall for company directors, who may take most of their income as dividends with only a small salary.

Dividends don't count as 'relevant UK earnings' for this purpose, so the maximum annual pension contribution would be equal to a (small) salary.

If you exceed this allowance, you won’t receive tax relief on the excess, and you will also have to pay an annual allowance charge.

However, you can carry forward any unused annual allowance from the past three tax years, which a financial adviser can tell you more about this.

If you have started to access your pension pots, but want to keep paying money into them, then be aware that your annual allowance will shrink. It will fall to £10,000 for all defined contribution schemes you're in if the money purchase annual allowance (MPAA) has been triggered.

What is your lifetime allowance?

The lifetime allowance has been abolished. There is no longer a limit on the total amount you can save into your pension without incurring an extra tax charge.

Previously, the lifetime allowance was £1,073,100, but this is no longer applicable.

Instead of worrying about a cap on the total amount, you should focus on the tax-free lump sums you can take and any relevant allowances, such as the LSA and the LSDBA.

• Lump sum allowance: You can take up to £268,275 tax-free. Amounts above this limit will be taxed at your marginal rate.
• Lump sum and death benefit allowance: You can receive up to £1,073,100 in total tax-free lump sums and death benefits. Anything above this limit will generally be subject to tax.

If you still contribute significantly to your pension or accumulate pots, the focus is now on these new allowances rather than the lifetime allowance.

It’s worth noting that lump sums and benefits are still subject to income tax depending on your circumstances, so you should speak to an adviser for more details on how these can affect you.  

If you took out transitional protection on your pension ahead of 2026, you may still be eligible for higher lump sum allowances depending upon the type of protection you opted for.

Get expert financial advice 

Understanding the limits on pension contributions and withdrawals can help you maximise your retirement savings.

While the lifetime allowance has been abolished, it's essential to be mindful of the new tax-free limits on lump sums and death benefits.

You can now focus on maximising your contributions within the annual allowance and making the most of the tax-free lump sum options. Keeping an eye on these allowances can help you optimise your retirement savings strategy and ensure you make the most of available benefits.

Let Unbiased quickly match you with a financial adviser for expert financial advice to help you navigate pension contributions and tax-free allowances and make informed retirement planning decisions.