Autumn Statement: Treasury cuts pension tax relief to £40,000

Chancellor George Osborne has reduced the amount that can be paid into pensions each year with tax relief, cutting it from £50,000 to £40,000, from 2014-2015.

The lifetime allowance will also go down from £1.5 million to £1.25 million. These cuts are estimated to save £1 billion annually.

In his third Autumn statement, Osborne said: ‘The average contribution is just £6,000 – I know these tax measures will not be welcome by all, ways to reduce the deficit never are - but we must demonstrate we are all in this together.'

However, the reduction of tax relief has been condemned by the pensions industry, who believe the cut will hit not just the wealthy, but middle income earners.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: ‘Effectively, it’s robbing the future prosperity of this country and paying for the debts of the past.’

‘I’m disappointed. Could we leave pensions alone for a while please? It’s unfortunate they’re not doing that. It’s the easiest and lowest risk thing for them to do, because it’s turning a dial down on an existing system – it’s not changing the rules as in 2009.

‘It’s bad news generally in undermining the confidence and stability of the pensions system.’

He added: ‘It starts to eat severely into ordinary people’s ability to manage fluctuations in their retirement funding.’