When the lifetime allowance (LTA) – the maximum amount of pension savings you can build up without a tax charge – was introduced in 2006/07, £10m in tax was collected.

But just a decade later, the tax charge paid by pension savers has rocketed 1,000%, adding £100m to government coffers.

The LTA limit currently stands at £1.03m but it has steadily fallen from the more generous £1.8m and as a result, more people are falling within scope of the tax charge.

WEALTH at work, which provides financial education and guidance in the workplace, said people who breach the LTA typically fall within three categories:

• Those who are unaware
• Those who think they’re a long way off
• Those who think they’re protected but aren’t

The firm said the value of someone’s pot may be higher than they realise, and those in defined benefit (DB) schemes may be unaware their pension is valued at 20 times their annual pension for LTA purposes. As an example, an annual pension of £30,000 has a value of £600,000.

But if you transfer your DB scheme into a defined contribution (DC) scheme, the transfer value can be much higher – 40 times the annual pension which means a £30,000 annual pension could have a transfer value of £1.2m, exceeding the LTA.

Those who make healthy contributions into their pension and who receive employer contributions may be on their way to breaching the LTA, especially where growth is coupled with a pay rise.

As an example, someone aged 45 with a pension fund of £400,000 and a salary of £50,000 saving 5% of their salary which rises 3% per year and with 10% employer contributions rising by 3% would mean their pension fund reaches £1.67m by the time they retire at 65.

For the last group who may have taken action to ensure they don’t go over the threshold, they could still be at risk of a breach. This is because of auto-enrolment. While employees have a right to opt out, employers are required to re-enrol employees every three years and may do so without their knowledge. As such, employees should make a note of this date.

Jonathan Watts-Lay, director of WEALTH at work, said: “Reaching the LTA could be closer than many think. The tax implications could be drastic with many potentially being hit with an unexpected and sometimes unnecessary tax bill.

“It’s vital you take the time to consider all options including seeking further guidance or regulated advice if required, before making what could be a life-changing decision.”