Freeze on lifetime allowance will hurt retirement plans

The lifetime allowance - introduced under A-Day pension simplification measures - has steadily grown from £1.5m in April 2006 to £1.8m in 2010/11 and was expected to continue. However, the chancellor has frozen the limit until at least April 2016.

Aegon said the move was an unwelcome U-turn at a time when more pension saving should be encouraged.

Head of pensions development Rachel Vahey said: "The lifetime and annual allowances were fundamental aspects of the increased A-day flexibility. Government set out clear increases for the five years following A-day to give people certainty in their financial planning.

"The expectation was that the levels would carry on increasing after the 2010/11 tax year, the debate was just about by how much."

Standard Life said the announcement means any individual who had a pension fund above £1.25m, and achieves reasonable fund growth of 6.5pc, will face a 55pc tax charge on some of their fund by 2015.

Pensions policy manager Andrew Tully said: "Although this reduces the real value of the tax efficient pension saving, people may still want to save more than £1.8m and pay the 55pc tax charge.

"In some cases, this will be better than saving through a net fund investment such as a unit trust or OEIC, particularly for those paying 45pc income tax in future."