Prudential said the scope of the annual pension tax relief will likely be reduced as more and more people enter the system through auto-enrolment, effectively creating a tax gap.

The freezing of income tax thresholds will further contribute to the tax gap as new higher-rate tax payers continue to make use of exemptions when making contributions, it added.

This means that HM Revenue & Customs (HMRC) will likely be looking at reducing the impact of the relief scheme on its coffers, with lowering the annual tax-free allowance being the easiest option, the insurer suggested.

Head of business development Vince Smith-Hughes said: “There is only a certain budget available for tax relief. Currently the concern is that a lot of the budget is being used up by people who are receiving higher rate relief but people coming into auto-enrolment will obviously be using up quite a lot of the budget as well.

“There is a lot of talk about restricting the tax relief or restricting the tax free cash. Anything like that is going to be quite difficult.

“The more likely scenario is that [HMRC] will actually come to reduce the annual allowance further in the future. It’s going down to £40,000 next year but I think there is a possibility that we’ll actually see it being reduced further from that point.”

Savers would be well-advised to increase their pension contributions, where possible, while the current system is still in place, Smith-Hughes added.

He said: “If you’ve got clients who are able to pay higher levels of contribution now, why wouldn’t you do it now while it’s available?”

Smith-Hughes also pointed out that HMRC rules about the £100,000 income limit for personal allowance meant that savers would benefit from putting more money into their pensions one they crossed that threshold.

“People earning more than £100,000 lose their personal allowance gradually, so if they get to twice their personal allowance level (in addition to their income) they’ve lost all their personal allowance, that’s equivalent to [paying] a 60% tax rate.

“If you pay a pension contribution equivalent to that rate you’re effectively getting 60% tax relief and you actually got all of that tax back.”