The increase in the personal tax allowance to £11,850 from 6 April 2018 may encourage people to continue saving into a pension once auto-enrolment contribution rates rise in April, Aegon head of pensions Kate Smith has said.

“People are facing a squeeze in their wallets due to a combination of rising inflation and interest rates with little sign of real wage increases in sight. On top of this employees’ paying auto-enrolment minimum contributions are set to see them treble next April. The increase in the personal tax allowance will soften the blow hopefully encouraging people to keep on saving,” she explained.

Increasing the higher rate tax threshold to £46,350 will also affect the pensions tax relief received by those savers who will now be moved from the higher rate tax bracket to the basic rate, Smith stated. These people will now receive basic rate tax relief on their pensions savings – so around half of what they were previously receiving from the government as tax relief.

As Scotland’s higher rate income tax band is £43,000, “this means that some people resident in Scotland and the rest of the UK, but earning the same amount, will not only pay different levels of income tax, but also benefit from different pension tax relief on their contributions,” she added.

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