The government has said it will raise the lifetime limit on individual pension funds from £1.5 million to £2.5 million.

This move has been welcomed by the chief executive of Norwich Union Life, Gary Withers.

“The increase in the cap in the first ten years is an important step in the right direction,” he commented

Mr Withers added: “This is good news for the consumer as there will be more products, choice and competition in the market, good for the industry as we now have clarity and a more economic price cap, and good for the government as this should help to get the savings and pensions issue back on people’s agenda.”

The government has decided to help savers in money purchase pensions having received strong criticism over the previous £1.5 million limit.

From April 2006, people saving up pension funds over the lifetime limit will be taxed at an effective rate of 55 per cent on income from the part of the fund exceeding the cap.

Mr Withers concluded: “This outcome reflects a constructive period of consultation on a complex issue.”

The lifetime limit is being introduced as part of the government’s simplification of the pensions regime.