………………and of course a pension fund of £1.25 million is, indeed, a lot and I am sure most of us will accumulate a pension fund far less than this.  But the new limit coming into effect from 2014 may tell us a bit about how the Government is thinking about private pension provision and retirement savings generally. Recently the Lifetime Allowance was trimmed back from £1.8 million to £1.5 million but for the first time based on the new Allowance and current annuity levels, a pension fund of £1.25 million will provide an annual pension of £40,000 p.a. – below the higher rate income tax threshold – this pension would include a 3% hedge against inflation and a 50% spouse’s pension.

To coincide with the reduction in the Lifetime Allowance, the Annual Allowance – the maximum amount you can save in a pension plan with full tax relief – is being cut from £50,000 p.a. to £40,000 p.a.

These measures will certainly cut the amount of tax relief the Government dishes out on pension contributions but an increasing number of savers will need to look at other methods of savings and investment to top-up their retirement income, with very few providing the same level of tax relief.

The Government have not announced any plans to re-visit the new limits or provide any hedge against the impact of future inflation so, in real terms, these limits will lead to a lowering of the maximum possible pension for an ever increasing number of savers.

It will be interesting to see if successive Governments will continue or reverse this shift.