Chancellor Gordon Brown could receive a £7.2bn boost in tax revenue a year by leaving the proposed lifetime pension limit at £1.4m, says a leading accountancy firm.
Figures from Numerica show that if the limit stays at the level proposed by the Government rather than the £2m demanded by the industry, the Treasury would reap a £7.2bn benefit.
The Treasury says the limit will only affect 5,000 people but argues that raising it to£2m would not be sustainable.
It claims that its proposals will increase the amount of pension tax relief it is granting by between £5m and £300m a year as the maximum amount of tax-free cash available per person will be increased to £350,000 from the current level of £150,000.
The research from Numerica tax director and head of economics Maurice Fitzpatrick is based on an estimate by pension consultant Mercers that 600,000 people will be affected by the £1.4m cap.
Mercers says its figure takes into consideration the number of people who will be affected over the next three years because the cap will be linked to prices rather than earnings.
A Treasury spokesman says: “We would dispute these figures and believe that the figures contained in our report are robust.
“The change in the pension tax system will cost up to £300m a year and we will publish a report detailing this before the end of the year.”
Scottish Life head of pensions strategy Steve Bee says: “We need to ask if this is really a revenue-raising initiative. It is a happy accident. The knock-on effect will be on the decision-makers who are going to end up paying quite a lot more tax.
“I have always been concerned about the unintended consequences of this policy. It could kill off what has been a flourishing private pensions industry.”