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New charge can be paid from pension fund

The Treasury has confirmed that people hit with annual allowance charges of over £2,000 will be allowed to use their pension pot to meet the payments.

It says pension schemes will be required to operate the facility only where an individual exceeds the new £50,000 allowance within that scheme in the relevant year. Tax charges will need to be met at the point at which the charge arises.

Under the Government’s revised proposals, announced in October, the annual allowance for pension saving will be reduced from £255,000 to £50,000 from April 2011. The lifetime allowance will also be cut from £1.8m to £1.5m from April 2012.

Treasury financial secretary Mark Hoban believes the proposals, which are expected to save £4bn a year compared with the current system, are “tough but fair”.

He says: “We have abandoned the previous Government’s complex proposals and developed a solution that will help tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.”

But National Association of Pension Fund senior policy adviser David McCourt warns that administering the proposal will be “extremely costly” for pension schemes.

He says: “We appreciate that the Government is trying to allow pension scheme members to mitigate tax charges through a reduction in their scheme benefits but we are extremely disappoin-ted that the threshold at which they can do this has been set at only £2,000.

“The low threshold is likely to encourage more people to use this option and this will lead to an increase in administration and costs for pension schemes.”


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