The government should match any reduction to the annual allowance with an increase in the number of years people can carry forward unused allowances, Zurich has said.
In its submission to HM Treasury ahead of the Budget, the insurer urged the government to look at other ways to help self-employed workers save for retirement.
The growing population of self-employed workers could be the hardest hit by a Budget cut to annual allowance and the insurer has urged the Chancellor to consider measures to soften the blow of pension cuts.
It comes after the chancellor Philip Hammond hinted at changes to the annual allowance at an International Monetary Fund conference last week (12 October).
In its 19 page-long paper titled, Pensions tax relief: Where will the chancellor’s Budget axe fall?, Royal London predicted that the annual allowance could be reduced from £40,000 to £35,000 or £30,000.
Alistair Wilson, head of retail platform strategy at Zurich, said: "Self-employed workers often have to choose whether to contribute to a pension or invest in their business.
"This means they may only be able to make ad hoc contributions as they go or larger payments nearing retirement.
"Britain’s growing population of self-employed workers already misses out on benefits such as auto-enrolment, making it harder for them to save for retirement. Restricting the amount they can save would penalise them further.
"The Government should resist any further changes to the pension system. Increasing the number of years consumers can carry forward unused allowances, or raising the contribution limit for those close to retirement, would soften the blow of a lower annual allowance."
According to a survey carried out by the Association of Consulting Actuaries (ACA) there was strong support on behalf of employers for reforms to simplify the pensions tax regime.
The survey found 78 per cent of employers said the tapered annual allowance should be rethought while 53 per cent said that the lifetime allowance should be abolished.
Of the 349 employers surveyed, 59 per cent said the current tax structure was too complicated and 75 per cent said they were in support of changes to pension tax relief that would help lower income earners.
Jenny Condron, chairman at the ACA said: "The aim should be to re-establish a stable, transparent tax regime that rewards and encourages employees on all incomes to save for later life, whilst also encouraging employers to play their very important part.
"Rightly, the Government should be able to cap the amount of tax relief pensions enjoy, but importantly it must restore a long-term confidence that the goal-posts won’t move year in, year out. Ideally and optimistically, it would helpful if there was some cross-party support for such an initiative.
"General levels of pension saving remain far too low to deliver comfortable levels of income in later life – people need to save more.
"Pension tax relief remains an important part of social policy and should reward and encourage employers, employees and the self-employed to lock money away."
According to the ACA’s survey also nearly a third of employers found the changes and increases in pensions taxation over recent years had caused caused senior staff to leave their firms’ pension scheme and led businesses to reconsider their pension arrangements.
The research paper published by Royal London suggested a reduction to the tapered annual allowance, from £150,000 to £125,000, also had a high probability.
This would be applied to high earners, and means that for every £2 of income above £150,000 per year, £1 of annual allowance could be lost.
rosie.quigley@ft.com
