Younger high earners lose most due to ‘absurd’ tax rules

£150,000. Tim Holmes of Salisbury House Wealth, a financial adviser, said: “Limiting pension savings to £10,000 a year for those earnings over £210,000 can deal a big blow to young professionals who succeed early on in their careers.

“It can mean that they struggle to save enough to maintain their standard of living in later life – especially if they depend on their pension savings alone.

“As the economy continues to recover – and as more and more young people choose to start up their own companies – young high earners could increase considerably in numbers over the coming years.”

Sir Steve said: “The point of a pension is to make sure your living standard doesn’t slump when you stop earning. If you can’t save a significant proportion of earnings you are going to see a big drop in your standard of living in retirement.” His rule of thumb is that every £1,000 you put in a pension turns into roughly £1 a week in retirement income. This means that a £10,000 allowance adds only £10 a week to pension income each year.

While some might dismiss this as a problem only for the very rich, Sir Steve said that because the earnings “threshold” figure for calculating the allowance included all wages, any other income and the money your employer put into the pension, it could hit many people.

“I think it’s pretty prevalent that companies will not want to work out the actual allowance each employee has and so instead says it’s simpler to just reduce the allowance to £10,000,” he added. “That pushes more people out of pensions and so they end up investing in property and other assets.”

Many higher earners are only just realising that they have fallen foul of the rules, said Claire Trott of Technical Connection, a tax specialist.

“Pension saving statements have only gone out in the past month for the last tax year, so people are only just realising that they have been caught out,” she said.

Many others are caught as their bonuses are not paid until the end of March, meaning they don’t actually know what their earnings will be until the end of the tax year, Ms Trott added.

She said she expected Mr Hammond to lower the income limits again, and so trap more people in the net.

“I live in hope the rules will be changed. It’s currently a completely unworkable policy. But I fear the threshold will come down again.”

‘£10,000 only adds £10 a week to pension income’