Pension contributions above the Annual Allowance are denied relief and also charged the Annual Allowance charge #2237

What happens

pension_contributions_relief caps relief at max(basic_amount, pension_annual_allowance) (variables/gov/hmrc/pensions/pension_contributions_relief.py). Then personal_pension_contributions_tax charges (pension_contributions_for_annual_allowance − pension_annual_allowance) × marginal rate (variables/gov/hmrc/pensions/private_pension_contributions_tax.py), and that charge feeds income tax. The excess over the allowance is therefore taxed twice: it gets no relief, and it is charged.

Under the law, relief is given on contributions up to 100% of relevant UK earnings (Finance Act 2004 s.190). The Annual Allowance charge (s.227) then claws back relief on the excess, once. Carry-forward of unused allowance from the three previous years (s.228A) is also not modelled.

Reproducer

Run at 2.89.2. The formulas are unchanged on main as of 9 October 2026.

One adult, age 45, £150,000 employment income, London, 2024:

With the correct treatment, the £80,000 case gets relief on £80,000 (taxable income £20,000 lower), and the £8,000 charge then takes back the extra relief. Income tax should be about the same as the £60,000 case, not £8,000 higher.

Impact

Found by the fiscal-event replay in PolicyEngine/policyengine-scorecard#157, reviewed in #156. Spring Budget 2023's Annual Allowance increase to £60,000 costs −£4.3bn to −£6.5bn a year in PolicyEngine, against the OBR's −£0.2bn to −£0.4bn. Some of that gap is construction scope (no carry-forward, and employer contributions counted in the charge base, so defined benefit accrual is treated as a contribution).

Fix

Give relief up to relevant earnings (not the allowance), keep the charge on the excess, and model carry-forward if inputs allow. Add a property test: for contributions at or below relevant earnings, increasing contributions above the allowance never raises income tax by more than the clawed-back relief.