HM Treasury has published a discussion document, ‘Options to meet high annual allowance charges from pension benefits’, inviting responses to proposals to allow individuals to meet the annual allowance charge out of benefits, thus making the charge more manageable.

The proposal comes in light of concerns that following the reduction in the annual allowance (due to be implemented in April 2011), high-earning individuals are likely to exceed the annual allowance and incur allowance charges, which they may be unable to meet from income.

The discussion paper suggests that an amount of the charge (between £2,000 and £6,000) should be met out of income, with the rest payable from pensions benefits. An individual would also be permitted to nominate which scheme is to meet the charge where he or she is a member of more than one pension scheme.

It is also proposed that following self-assessment, the individual would choose whether to meet the excess through pension benefits immediately or when the benefits crystallise. In the latter case, interest would be applied until the charge is met.

The consultation period will close on 7 January 2011.