Drastically lower limits on pension savings are being considered by the Government.
Treasury officials are examining cutting the lifetime allowance to £750,000 and reducing the amount that can be put away each year. The taskforce has been charged with bringing down the £34billion annual cost of pension perks.
Experts warn that such a ‘terrifying’ move would hit millions of prudent workers on modest salaries. Those who break the new limits would be hit with a tax charge of 55 per cent.
Malcolm McLean, of actuaries Barnett Waddingham, said:
‘The Government says these changes are all about simplifying the system but in fact it is about bringing in more money. If this is introduced it will hit many more workers – some of them on ordinary salaries.
People don’t know where they are when it comes to putting money away into a pension any more. I don’t understand the need to penalise them for saving for their old age.’
Insiders say up to eight million people with final salary pensions would have the amount they could put away over a lifetime reduced from £1million to anything between £750,000 and £800,000.
Such a cut could hit workers on modest salaries who have already made hefty contributions into a pension, such as junior doctors, senior nurses and teachers.
According to a survey, a 40-year-old earning £40,000, with an existing final salary pension pot of £130,000 would hit a £750,000 limit by the time they hit retirement. This is if they and their employer contribute 15 per cent of salary between them and their pension received 5 per cent annual investment returns.
It is understood that the Treasury is also considering creating a separate system for workers in private stock market-linked schemes.