Chancellor George Osborne has announced plans to cut the annual allowance for tax-incentivised pension saving from £50,000 to £40,000 and reduce the lifetime allowance from £1.5m to £1.25m in 2014/15.
The Government is also considering introducing a “personalised protection regime”, in addition to a new fixed protection, for people who think they will be affected by the lifetime allowance cut.
A J Bell says individuals will be able to apply for the new fixed protection from summer 2013 after the legislation has come into force.
For defined-contribution savers who apply for the new fixed protection, no further pension contributions will be allowed from 6 April 2014, while defined-benefit members will need to stop building up benefits from this date.
Investors will be able to apply for fixed protection if they do not already have one of the existing forms of protection.
The personalised protection regime, if introduced, would cover those with pension pots valued at more than £1.25m on 6 April 2014. A J Bell says this version of protection will allow people to continue paying contributions into their pension.
Giving his Autumn Statement today, Osborne said 99 per cent of savers make annual contributions of less than £40,000 and the average saver pays £6,000 into a pension each year.
He said: “We have in this Parliament already reduced the amount of tax relief we give to the very largest pension pots.
“From 2014/15, I will further reduce the lifetime allowance from £1.5m to £1.25m and reduce the annual allowance from £50,000 to £40,000.
“This will reduce the cost of tax relief to the public purse by an extra £1bn a year by 2016/17.”
It is the second time Osborne has cut the annual allowance since becoming chancellor in May 2010. In April 2011, the yearly cap on tax-free pension contributions was reduced from £255,000 to £50,000.
Last month, business leaders and pension experts warned reducing the cap further would hit public sector workers, who tend to receive large employer contributions in defined-benefit schemes, and entrepreneurs, who often make a few large contributions into their pension rather than regular, smaller payments.
There is also concern the decision to tinker with the tax system again, so soon after the last change, will put people off saving into a pension.
Osborne has also announced an increase in the maximum amount a person in capped drawdown can take from their pension each year from 100 per cent of the equivalent GAD annuity rate to 120 per cent.