The tax breaks high earners get on pension savings are to be cut dramatically to save £4 billion a year, it has been announced.
The amount people can save tax-free into a pension each year is being slashed from £255,000 to £50,000 from next April.
But those on high salaries will continue to receive tax relief on pension savings at the highest rate at which they pay income tax.
The Government also plans to reduce the lifetime pensions savings allowance that benefits from tax relief from £1.8 million to £1.5 million from April 2012.
The reforms replace the complex changes to the regime proposed by the previous government, under which people earning more than £150,000 would have had the level of tax relief they received gradually reduced to 20%, despite the fact that they paid income tax at 50%.
The previous proposals sparked outrage from the pensions industry, with commentators warning that the rules would be complex to administer and might put people off saving through a pension.
The measures received a broad welcome, although there were concerns that some people on middle incomes who had defined benefit schemes might face an unexpected tax bill.
As part of the reforms, the Government is raising the rate at which increases to the pensions accrued in defined benefit schemes are valued.
This means that someone whose pension entitlement rose by more than £3,125 a year could be hit with a tax bill.
To help protect workers on low and moderate incomes, people who exceed the annual allowance because of one-off spikes in pension accrual will be allowed to offset it against their unused allowance from the previous three years.
