From April next year, the pension lifetime allowance will rise by £5,800 to £1,078,900, allowing individuals to save more money without paying tax.
The lifetime allowance (LTA) is the maximum amount of pension savings a person can build up without a tax charge. It is currently £1,073,100 but will increase by 0.5 per cent in the new tax year.
While saving the full amount allowed may sound significant, for a healthy 65-year-old it would buy a single-life annuity paying less than £28,000 per year (around the UK average wage).
It is also worth noting that although the LTA is increasing in line with the Consumer Price Index, it is still less than the £1.8 million that taxpayers could take advantage of in 2011/12 before cuts were made to allowances.