Pension annual allowance

Annual allowance and — defined benefit pensions.

DB pension accrual is measured differently to DC contributions — using a 16× multiplier rather than cash amounts. Here is how the formula works, why high-earning public sector workers can inadvertently exceed the allowance, and how carry forward absorbs spikes.

By Pension Bible editorial team·Last reviewed 9 April 2026·6 min read

Why DB pension input is calculated differently

In a defined contribution pension, the pension input amount is simply the sum of all contributions made during the year — employer plus employee. In a defined benefit scheme, there are no individual contributions in the same sense: the employer promises a pension at retirement based on salary and service. The cash going into the scheme is not attributable to individual members in a direct way.

To make DB schemes comparable with DC schemes under the annual allowance rules, HMRC uses a capitalisation approach. The increase in the value of an individual's DB pension entitlement over the tax year is multiplied by 16 to arrive at a notional "pension input amount." That figure is then measured against the annual allowance alongside any DC contributions.

The 16× multiplier is derived from the HMRC-prescribed factor that converts an annual pension into a capital value. It applies to all DB schemes — public sector, private sector, career average, and final salary.

The pension input amount formula

The pension input amount for a DB scheme is calculated at the end of each pension input period (which aligns with the tax year, 6 April to 5 April). The formula is:

(Closing pension entitlement × 16) − (Opening pension entitlement × 16 × CPI revaluation factor) + any increase in associated lump sum

Where:

• Closing pension entitlement is the annual pension the member has accrued by 5 April, calculated using the scheme's normal valuation method (not actuarial values specific to the individual)
• Opening pension entitlement is the annual pension accrued at the start of the year, as at 6 April
• CPI revaluation factor is applied to the opening pension to reflect that it would have increased in line with CPI regardless of further accrual — this prevents inflation-only growth from generating artificial pension input amounts
• Lump sum is relevant for schemes that provide a separate lump sum on retirement; any increase in the lump sum entitlement during the year is added directly (not multiplied by 16)

The CPI rate used for 2025/26 is the September 2025 CPI figure, published by HMRC in advance of the tax year.

Example: a Band 7 NHS nurse

Consider a Band 7 NHS nurse with a current salary of approximately £46,000 per year, accruing pension in the 2015 NHS Pension Scheme (NHS pension calculator) at an accrual rate of 1/54th of pensionable pay per year.

Pension accrual in 2025/26 = £46,000 ÷ 54 = approximately £852 per year of pension.

Pension input amount (simplified, ignoring CPI adjustment on opening balance) = £852 × 16 = approximately £13,600.

This figure alone — from a single year of NHS pension accrual on a Band 7 salary — consumes £13,600 of the £60,000 annual allowance. That leaves £46,400 for any DC contributions, including any workplace or personal pension saving this nurse might have alongside their NHS pension.

Now consider a Band 8c manager earning £75,000. Accrual = £75,000 ÷ 54 = approximately £1,389 per year. Pension input = £1,389 × 16 = approximately £22,200. That's over a third of the annual allowance used by NHS pension accrual alone.

At consultant level — say a salary of £120,000 — the annual accrual is £120,000 ÷ 54 = £2,222. Pension input = £2,222 × 16 = approximately £35,600. Add a private sector DC pension alongside and the combined input can approach £60,000 without any particularly large voluntary contribution.

When high-earning DB members inadvertently breach the allowance

The most common route to an unexpected annual allowance charge for DB members is a pay rise, promotion, or backdated pay award that causes a spike in pension input.

Under a career average scheme, a substantial pay rise increases both the current year's accrual and the value of the pension calculated on the opening balance — but the revaluation factor only adjusts the opening balance for CPI, not the full salary increase. If salary rises sharply, the closing pension figure grows significantly more than the CPI-adjusted opening figure, producing a large pension input amount in that year.

Under a final salary scheme, the effect is even more pronounced. The closing pension is calculated on the new (higher) salary applied to the full length of service to date. The opening pension was calculated on the old salary. The difference — multiplied by 16 — can be very large even for a modest percentage pay rise, particularly for members with long service.

Carrying forward to cover unexpected DB accrual spikes

Carry forward is the standard mechanism for absorbing an unexpectedly large DB pension input. If a consultant received a significant pay uplift or a senior civil servant was promoted partway through the year, the resulting pension input may exceed the standard £60,000 allowance. Provided unused allowance from the prior three years is available, carry forward can cover the excess entirely.

The annual allowance checker calculates DB pension input given closing and opening pension figures and the applicable CPI factor, then applies any carry forward to determine whether a charge arises. For NHS and other public sector workers, the pension scheme will issue an Annual Allowance Pension Savings Statement for any year in which pension input exceeds the standard annual allowance — this statement provides the input figure needed for carry forward calculations.

This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.