The lifetime allowance for tax-free pension savings is to be cut, the Chancellor, George Osborne, announced in the Autumn Statement.

As was widely predicted, the Chancellor cut the annual pension allowance from £50,000 to £40,000, and at the same time reduced the total lifetime limit on pension savings from £1.5m to £1.25m.

This will not come into affect until the 2014/15 tax year, however, giving many wealthier savers the opportunity to boost pension contributions now, although those who exceed the lifetime limit will face a punitive tax charge. The Chancellor said this decision would affect only around 1pc of the population as the average contribution into a pension plan was just £6,000 a year.

However, it is feared that this reduction will also hit those who are in generous final salary schemes, who may be on more modest salaries. This is because a significant pay rise, which would increase the contribution made to their pension scheme, could push them over the limit and land them with a tax charge. For example, those on a £50,000 salary, who have been members of a final salary scheme for 25 years, would exceed the annual pension limit if they receive a pay rise of 10pc a year or more.

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