The annual allowance will be cut from £50,000 to £40,000, which will save the Treasury £1bn a year by 2016/17, Chancellor George Osborne announced in his Autumn Statement today. Furthermore, the lifetime allowance will be reduced from £1.5m to £1.25m.

Two years ago the annual allowance, the amount savers are allowed to pay into a pension without being taxed, was already cut from £255,000 to £50,000. Tax office statistics showed that in 2010/11 the Treasury missed out on £32.9bn in pension tax relief.

Partner at business and tax advisory firm Russell New, Vince McLoughlin said: "I think most people could accept a drop in the annual allowance from £255,000 but down to £40,000 or £30,000 could be a drop too far. The problem is that far from being an attack on the wealthy as it is portrayed, the restriction to £40,000 starts to hit the middle income earner and the heart of the Tory support. It could be political suicide. Maybe a more acceptable solution is to restrict relief to the basic rate – simple to operate and overtly equitable to all earners.”

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