Individuals who exceed the annual allowance may be allowed to meet the tax charges from their pension benefits, a Treasury consultation paper says.
The consultation paper - published today - proposes allowing individuals that exceed the annual allowance to pay the tax charge from their pension savings rather than their salary.
The Treasury said it is especially likely for high earners and long servers in final salary defined benefit schemes with generous accrual rates to exceed the annual allowance of £50,000, for example following a large salary increase, despite the carry-forward of unused allowances from the previous three years.
It said: "In some instances, where there is a significant uplift to the pension in a given year -- the resulting tax charges could be substantial. Although these individuals will generally be high earners, it is feasible that the charges will not be manageable from current income in a small number of cases.
"In these exceptional situations, the government has committed to consult on options to enable individuals to meet the charge out of their pension benefits, rather than current income."
The government is proposing two broad options for delivering this - primarily differentiated by when the charge is met: either at the point the charge arises, or at the point the pension benefit crystallises.
Among the issue considered include who would be eligible to elect to pay annual allowance charges from pension benefits, and the interactions with other features of the pensions tax regime, including the lifetime allowance and tax-free lump sum.
Elsewhere the consultation explores the possible models for meeting the charge from pension benefits in more detail - including how they might be expected to work in practice, and highlighting specific circumstances where the approach may need to be flexed.
The consultation is open until 7 January.
'Life catches up with us in the end'
‘Personalised Predictive Analysis’ tool
Summer series continues
Both start in August