Sussex savers were given mixed news as the Chancellor announced controversial plans to cap the amount of retirement savings that can benefit from tax relief.

They were granted a slight reprieve with the news that the limit would be set at £1.5 million, rather than the £1.4 million originally announced.

The eight existing tax regimes for pensions will be replaced by a single 'lifetime allowance' which will be set at £1.5 million for the first year of its introduction from April 2006, rising to £1.8 million by 2010.

The Chancellor also set the annual limit on pensions savings that can benefit from tax relief at £215,000, up from the previously announced level of £200,000. This limit will rise to £255,000 by 2010.

The Government had estimated just 5,000 people would be affected by the £1.4 million earnings cap on pensions saving that could benefit from tax relief but some commentators put the figure nearer 600,000.

The National Audit Office, which was asked to look into the issue by Gordon Brown in the Pre-Budget Statement, estimated only about 10,000 people would be hit.

The National Association of pension Funds welcomed the news that the Government was going ahead with the new tax regime.

Spokesman Andy Fleming said: "It is good the Government has obviously listened on this subject.

"But we are disappointed it will take two years to come into force."

Bob Rothenberg, senior partner at tax specialists Blick Rothenberg, said: "He has gone ahead with the proposals he said he would introduce, delaying them by a further year and increasing, after a lot of lobbying, the lifetime allowance to £1.5 million from £1.4 million."

Thursday March 18, 2004