Annual allowance is the amount you can contribute to your pension pots in a year before you stop receiving the tax relief the government gives you.
From 6th April 2023, the annual allowance will be increased from £40,000 to £60,000. If you contribute to your pension plan more than this limit, any further contributions are taxed at your highest income tax rate.
Note that the annual allowance is expressed as a ‘gross’ figure, so an annual allowance of £60,000 actually means you can only make a ‘net contribution’ of £48,000 because the government automatically adds the basic rate tax relief of 20% (£12,000) which brings the total to £60,000.
