Butler said: “In the long-run this is an allowance that really isn’t fit for purpose as an increasing number of people will reach the limit and change is needed to ensure that those who do the right thing and save for their retirement aren’t unduly penalised.”
The change might result in the opposite outcome to what the government may be hoping for, said Jon Greer, head of retirement policy at Quilter.
"If these moves are designed to get people to go back to work or continuing to work longer, they may have the opposite impact.
"In fact, it would arguably allow some to retire earlier if they can put more in."
Jason Hollands, managing director at wealth manager Evelyn Partners, pointed out that in the case of the LTA, investment growth is included so someone who has made wise investment decisions can be penalised with a tax charge.
“This has created a disincentive for continued pension saving amongst higher earning professionals and is a factor driving early-retirement decisions at a time when the economy faces the challenge of tightening labour market," he said.
"In particularly, restrictions on pension allowances – which have been reduced over the years both in nominal and real terms – have created well-documented problems in the public sector, especially in the NHS, where generous defined benefit pensions remain in place, meaning that many professionals retire early or are reluctant to take on further work.
"But without a rethink, the LTA is becoming a greater issue for those with defined contribution pension schemes who have saved diligently over a long period, and this will only escalate at current rates of inflation. "
State pension age
The state pension age is legislated to increase over the next 25 years and there is currently a review of the state pension age being carried out looking at whether the existing timetable remains appropriate.
The review, which was announced in December 2021, looks at whether the rules around pensionable age are appropriate, based on the latest life expectancy data and other evidence.
Life expectancy in the UK has been falling, which has led to some to call for a rethink in planned state pension age increases.
The Department for Work and Pensions will also consider whether it should bring forward the rise in the age at which people become eligible for the state pension to 2037-39.
Andrew Tully, technical director, Canada Life said these changes need to be communicated effectively.
