Company pension payments: the £60,000 limit and carry forward

Your own pension payments get tax relief only up to your earnings, and dividends aren't earnings. So on a £12,570 salary, that's £12,570 a year. Payments from your company aren't limited by your salary. They count towards the annual allowance of £60,000 a year, which covers everything paid in by you and the company.

Carry forward

If you've paid in less than the allowance in the last 3 tax years, the unused part can be added to this year's, for any year you were a member of a registered pension scheme. This year's allowance is used first, then the oldest year.

A worked example: a director paid in this over the last three years.

Tax year	Paid in	Unused
2023 to 2024	£20,000	£40,000
2024 to 2025	£15,000	£45,000
2025 to 2026	£0	£60,000

That's £145,000 carried forward, so this tax year up to £205,000 can be paid in without an annual allowance charge.

When the limit is lower

• Tapered annual allowance. If your threshold income is over £200,000 and your adjusted income over £260,000, the allowance falls by £1 for every £2 over, to no less than £10,000. At £300,000 of adjusted income it's £40,000.
• Money purchase annual allowance. Once you take taxable money from a pension flexibly, the limit is £10,000 a year. See the money purchase annual allowance.

A business cost for the company

HMRC treats a company's pension payment as a business cost unless it has a purpose other than the business. For a director, it looks at whether the whole pay package, pension included, is in line with what unconnected staff would get for work of similar value.

Your retirement income

The worked example is a director aged 55 whose company pays £60,000 a year until they retire at 62. From 90, your income falls short of the £38,000 a year you want. Try the calculator with your own figures.