Last week HMRC revealed the amount of money raised from those exceeding the lifetime allowance had surged almost 2,000 per cent over the past decade.
For the first time, HMRC released figures showing the total tax take from those exceeding the lifetime allowance has increased from £5m in 2006/07 to £102m in 2016/17.
Advisers said the government should consider scrapping the lifetime allowance to encourage people to save for their retirement.
The lifetime allowance, the limit on the amount of money that can be saved in a pension without triggering a tax charge, currently stands at £1,030,000.
People incur a tax charge when the value of payouts from their pension pots, including any defined benefit schemes, exceeds the lifetime allowance. The way the charge applies depends on whether they receive the money as a lump sum or as part of regular retirement income. It is levied
David McCabe, founder of Five Point Consulting, said: "The lifetime allowance should be scrapped and with it will go the tax because it is massively contradictory .
"The government are constantly trying to encourage people to save more, particularly for retirement, but then take a chunk away in the form of the lifetime allowance tax if you build up too much.
"It’s a ridiculous situation and unfair to those in defined contribution schemes as they are at a disadvantage to those in defined benefit schemes because of the arbitrary way the lifetime allowance figures are calculated."
Mr McCabe said it would be better to restrict the tax relief given on contributions to a flat rate of about 25 per cent and allow people to build up as much as they want.
The figures released by HMRC last week showed the majority of the increase happened after 2012 when the government started cutting the lifetime allowance from £1.8m to £1m.
Calls for the lifetime allowance to be scrapped have been increasing, with the Treasury select committee calling for this earlier this year.
They recommended the allowance should be scrapped and replaced with a lower annual allowance because the current tax relief regime was not "effective or well-targeted".
Michael Pashley, financial planner and technical director at Expert Pensions, said the lifetime allowance was complicated therefore those affected should seek financial advice.
"The lifetime allowance is overly complex, and penalises individuals who have enjoyed strong returns on their investments within defined contribution schemes, and those who have accrued high levels of benefit within defined benefit schemes," he said.
"The government should consider scrapping it in order to encourage further pension saving, to ensure fairness between DB and DC scheme members, and to simplify the rules for pension scheme members."
He added: "In the meantime, I would encourage any pension scheme member who might be affected by the lifetime allowance to seek professional financial advice, and keep in mind that whenever the lifetime allowance has reduced, a degree of transitional protection has been made available."
But Ivor Harper, director at Park Financial, questioned the calls to scrap the lifetime allowance.
"This is merely the government taking back tax relief that they’ve already granted," said Mr Harper.
"I agree that you can have a tax-subsidised retirement but not a tax-subsidised luxury retirement. It shouldn’t be abolished as it’s a tax taken to benefit the nation.
"Pensions freedoms have inevitably made the tax take go up. The current safe withdrawal rate could give an individual a retirement income of around £35,000 and those who say that isn’t enough have lost touch."
HMRC’s figures also showed the tax raised from those exceeding the annual allowance, the amount that can be saved tax free annually, increased from £2m in 2006/07 to £561m in 2016/17 - an increase of almost 28,000 per cent.
Over the past decade the annual allowance has plummeted from £215,000 to just £40,000.
Darren Cooke, financial planner at Red Circle Financial Planning said: "I understand that HMRC needs to raise extra revenue and pensions are a target for that because the government gives away billions every year in tax relief on contributions so wants to get some of that back.
"However, we also need to incentivise people to save for their retirement and provide for themselves else they become a burden on the state and benefits system. That said few can afford the £40,000 annual allowance as a personal contribution and few will have any difficulty with the lifetime allowance at £1.03m and rising."
He added: "The lifetime allowance should be lifted back to £1.25m. That means that an individual could secure an index linked annuity plus state for a total income of around £50,000 a year from age 65. For the overwhelming majority of people in the UK that's a very good standard of living and can be supplemented by other savings or investments."
rosie.quigley@ft.com
