Last updated 18 June 2026
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NHS Pension Annual Allowance Explained
In brief: The Annual Allowance is the yearly cap on how much your pension can grow with tax relief. For most people it’s £60,000 a year, and most NHS staff never get close to it. Go over it and you pay a tax charge. This page explains how the cap works, why some staff got surprise bills in 2022, and what to do.
Your NHS pension comes with a tax deal. You get tax relief on what goes in, the pension grows tax-free, and you pay income tax later, when you draw it. The Annual Allowance is the limit on that deal. It caps how much your pension can grow in a year before a tax charge applies.
For most NHS staff the cap is £60,000 a year, and most never get close to it. This page explains how the allowance works, why some staff got surprise bills in 2022, and what to do if it affects you. It explains the rules; it isn’t personal tax advice.
Tax relief now, tax later
A pension is a “tax me later” arrangement. The money is tax-free on the way in and while it grows. It’s taxed on the way out, as income, when you retire.
For most people that’s a good deal. You get tax relief at your highest rate now, while you’re working. You often pay tax at a lower rate later, in retirement. And a quarter of what you take out is usually tax-free.
The NHS pension works a bit differently from a private pension. You don’t pay into a pot. You earn a promise of income for life. The tax deal still holds: your contributions get relief, and the pension is taxed when it’s paid. The Annual Allowance puts a yearly ceiling on the relief.
See it in your own numbers
Our calculator for Agenda for Change staff shows your pension contributions and the tax relief on them, alongside your tax, NI and take-home pay. Enter your numbers and see how it fits together.
Open the calculatorThe Annual Allowance: a yearly cap
The deal has a limit. Each tax year there’s a cap on how much your pension can grow with tax relief. That cap is the Annual Allowance. For most people it’s £60,000 a year, from 2023/24. Go over it and you pay a tax charge on the excess, at your normal rate of income tax.
£60,000
The standard Annual Allowance from 2023/24. The most your pensions can grow in a tax year before a charge applies.
The allowance covers all your pensions added together, not just the NHS one. If you pay into a private pension as well, that counts too.
How NHS pension growth is measured
In a private pension you can see what goes in: your contributions and your employer’s. The NHS pension is a career average scheme. It’s a promise of income, not a pot. So the tax rules measure the growth in that promise, not what you pay in.
Each year the scheme works out the rise in your yearly pension and multiplies it by 16. That figure is what counts against your Annual Allowance. A separate lump sum, if you have one, is added on top.
Worked example Say your built-up NHS pension rises over the year from £9,000 to £9,500. That’s a £500 rise.£500 × 16 = £8,000 counts against the allowanceThat’s well under £60,000. Most years look like this.
Two things push that promised pension up in a year: the new pension you earn from that year’s work, and the yearly uplift on the pension you’ve already built up. Neither your contributions nor your employer’s feed into the figure. That’s the opposite of a private pension, where the allowance counts the money paid in.
The growth is also measured above inflation. The scheme first uplifts the starting figure by inflation, its yearly revaluation, so ordinary inflation doesn’t use up your allowance. Only real growth is meant to count.
Why 2022 brought surprise tax bills
That last part went wrong in 2022. Inflation was high, and the two inflation figures the calculation used didn’t match.
Active members’ 2015 scheme pensions were revalued by 11.6%. But the Annual Allowance calculation only stripped out 3.1% of inflation. The gap, about 8.5%, looked like real growth even though it wasn’t. Many senior staff faced a charge with no extra pay behind it. The allowance was lower then, too: £40,000, before it rose to £60,000 in April 2023.
It has since been fixed. From 6 April 2023 the revaluation moved to the start of the tax year. It now uses the same inflation figure as the Annual Allowance calculation, so the two cancel out. Only growth above inflation counts again.
High earners: a smaller allowance
For some people, two rules lower the £60,000 they can build up tax-free in a year.
- The tapered annual allowance. If your adjusted income (broadly, your pay plus your pension growth) is over £260,000 a year, your allowance falls by £1 for every £2 above that, down to a floor of £10,000. This affects a small number of high earners.
- The money purchase allowance. If you’ve already drawn a separate defined-contribution pension flexibly, a £10,000 limit applies to what you can still pay into that kind of pension. It doesn’t change how your NHS pension builds up.
If neither applies to you, your allowance is the standard £60,000.
What to do if you might be affected
Most NHS staff don’t need to do anything. If your pension grows by more than the allowance, the scheme tells you. A few steps help if you think it might apply to you.
- Check your statement. NHSBSA sends a pension savings statement if your growth is over the limit. You can also ask for one.
- Consider Scheme Pays. You can ask the NHS pension to pay an Annual Allowance charge for you, rather than paying it yourself now. Your pension is reduced to cover it.
- Get advice for big decisions. Whether to pay now or use Scheme Pays depends on your own numbers. A regulated financial adviser can model it.
If you’re unsure where you stand, your statement and the NHSBSA Annual Allowance pages are the place to start. To see how your pension and pay fit together, try our NHS pension calculator.