HMRC must remove its lifetime allowance on pension savings if an annual limit is introduced or risk discouraging retirement saving, Skandia says.
The Revenue proposes to restrict yearly tax free pension contributions to between £30,000 and £45,000 and Skandia says this renders the limit on the total value of a pension fund irrelevant.
The company also recommends HMRC allows people to carry forward their yearly allowance for a rolling period of three years, to give them a chance to make up shortfalls with larger incomes in the few years before retirement.
Additionally, Skandia says maximum tax free cash should be limited to £450,000, or 25% of the current lifetime allowance of £1.8m.
"Whilst the government's requirement to reduce its expenditure on pension tax relief is understood, this must be balanced by the equally important objective of encouraging people to save for their retirement," says Colin Jelley, head of proposition at Skandia.
"In the long run this will also save the country money by ensuring people rely less on state support in their old age. As the proposals currently stand HMRC is leaving in place a barrier to saving which is unnecessary."
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