New restrictions on pension contributions could result in some contributors losing more than half their tax-free lump sum.

HM Revenue & Customs has revealed that people who increase their pension contributions by more than 20% of the tax-free lump sum they can draw out of their retirement pot, will become liable to a new penalty equal to 55% of the lump sum itself.

Tom McPhail, of the independent financial adviser Hargreaves Lansdown, said: “Whatever happened to the Chancellor’s stated aim of simplifying pensions? Even before the new rules take effect, we have complex anti-avoidance measures being introduced which will make it more difficult for people to understand pensions.”