Industry organisations have broadly welcomed the news that the government will abolish the lifetime annual allowance (LTA), although experts warned that there could be a "sting", with continued restrictions on the amount of money people can withdraw tax-free.

LV= retirement director, David Stevens, noted that whilst pensions savers will be “delighted” that the pensions lifetime allowance (LTA) is set to be abolished, many people may not realise that the amount of money they can withdraw tax-free from a pension is also being capped at its current level of 25 per cent of the LTA, an equivalent of £268,275.

“That means that even though savers can grow a pension pot above the previous LTA limit, the amount of tax-free cash they can take will be capped,” he stated.

This was echoed by Quilter head of retirement policy, Jon Greer, who warned that whilst abolishing the LTA represents a “golden opportunity” for higher earners, the changes to the tax-free lump sum will be a “sting”, as even if someone has a pension pot far bigger than the previous LTA this will be the most they can take out.

Adding to this, Interactive Investor head of pensions and savings, Alice Guy, commented: "Hidden in the budget report is a sneaky cut to the pension tax-free lump sum.

"This change may turn out to be a huge disincetive so some pension savers and it may erode one of the simplest and best loved pension rules."

Indeed, WTW senior consultant, David Robbins, also pointed out that in real terms, for someone retiring in 30 years’ time, the maximum tax-free lump sum will buy about half of what it does today, "and that’s if inflation does not surge again and if future Chancellors resist the urge to reduce what is now a standalone limit".

"It is understandable that the Chancellor wanted to retain a cap on tax-free cash at the same time as ending charges that he worried were deterring people from working," he added. "But this paves the way for less favourable tax treatment of pensions for some higher earners whose retirement is some way off."

Commenting on Twitter, LCP partner Steve Webb, raised concerns that, once the maximum tax-free lump sum is made a fixed cash amount, it starts being eroded by inflation, warning that future governments could also make further cuts in future, arguing that the news may signal “the gradual death of tax-free cash”.

M&G Wealth head of technical, Les Cameron, also argued that the change removes one of the key incentives to fund pensions.

He continued: “£100 of pension fund below the current LTA gives basic and higher rate tax payers £85 and £70 respectively. Now £100 over what was the current LTA will only deliver £80 and £60, matching what that £100 will have cost the basic and higher rate tax payer. This reduction in one incentive still leaves pensions as a highly useful and tax-efficient savings vehicle.”

This was echoed by Aegon pensions director, Steven Cameron, who said that the restriction on tax-free cash was “not surprising”, stating that “allowing 25 per cent of an unlimited pension pot tax free would have been excessively generous”.

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