IMA to back personal accounts contribution cap

The trade body – which is due to send a briefing note to MPs ahead of the Pensions Bill’s reading on April 22 – said it believes the £3600 annual contribution cap is absolutely necessary to prevent levelling down.

Spokeswoman Mona Patel said: "We support a £3600 annual limit, it wouldn’t make sense not to have this.

"The main reason for personal accounts is to help people on low to medium incomes that are not saving enough for retirement. We do not want personal accounts to become a way for high earners to get a cheaper pension."

She added: "Also, without sound financial advice and a contribution limit, there is the risk that some people will put excess money in, which could be better used elsewhere. For example, reducing debt."

However the IMA did not believe a 0.3pc per annum charge should be written into the Bill – as it would not be flexible enough to cover initial set up costs.

Patel said: "We just do not think that this should be written into the bill. This charge will not be enough in the earlier part of the scheme, as they’ll be a lot of initial costs involved, including set up costs."

IMA will also be telling MPs that it does not agree with compulsory annuities for the over 75s. "Although annuities are the best option for some people, they are not the best option for everyone," Patel added.

"The market should be open to alternatives and there should be much more choice so that people can decide what they want with their pension fund when they retire."