Budget 2015: The government has announced that it will reduce the pensions lifetime allowance (LTA) limit to £1 million from 6 April 2016.
It was also announced that from 2018, the limit will be index-linked and adjusted according to the level of inflation.
The current lifetime allowance has stood at £1.25 million since April 2014. It was previously £1.5 million before being cut by the government in the 2012 Autumn Statement.
Chancellor George Osborne announced the plans in his 2015 Budget. He said the reduction would save £600 million.
However, he ruled out cuts to the annual allowance, which is currently set at £40,000.
He said: “Over 96% of individuals currently approaching retirement have a pension pot worth less than £1 million, so this change will affect only the wealthiest pension savers.”
Malcolm McLean, senior consultant at consultancy Barnett Waddingham, added: “Frankly this is unfair, unnecessary and unwise.
“Although a million pounds still appears to be, and is, a very large sum of money, which clearly is beyond the aspirations of the average pension saver, it does mean that for a defined contribution pension pot it actually only produces an annual pension of little more than £27,000 (inflation proofed and providing for a spouse).
“In many respects, the concept of having a lifetime limit is outdated and unnecessary, now that the annual allowance has been reduced to £40,000 and is the effective controlling mechanism for limiting tax relief on pension saving.
“The existence of the LTA and the regular monitoring against it overly complicates pension saving at a time when strenuous efforts are being made through automatic-enrolment and other measures to encourage saving into a private pension.
