The Government came under renewed fire yesterday over its controversial plans to cut pensions tax relief for high earners when a House of Lords committee said that it had serious concerns about the move.

In its annual review of the Government’s Budget plans, the Economic Affairs Committee said that the new rules risked undermining Britain’s savings culture, introducing an unwelcome level of complexity and uncertainty. The committee, chaired by Lord Vallance of Tummel, a Liberal Democrat, said that although relatively few people would be hit by the tax changes, they were likely to be executives who were instrumental in company pension policy.

“They will be senior managers who will be influential in determining pensions policy for many company employees,” the committee said.

Lord Vallance said: “At a time when most people accept that we need to encourage greater pension saving, the proposed change may have a far wider effect than on the comparatively small number of people directly affected.”

PricewaterhouseCoopers found that 96 per cent of 157 UK companies that it surveyed were planning to dilute their pension schemes to reduce risk or to cut costs. More than three quarters of those surveyed said that the Government’s pension tax rules had put them off providing workplace pensions.

Alistair Darling outlined the changes in the Budget in April. Those earning more than £150,000 a year will have the tax relief on their pension contributions tapered, from 50 per cent down to 20 per cent on annual incomes of more than £180,000. The Treasury calculates that about 230,000 people will be affected, or about 1.5 per cent of the 22 million people who pay into a pension scheme. It hopes to raise about £3.1 billion from the reforms by the 2012-13 financial year. The committee urged the Government to consult exhaustively and acknowledged that some people would be paying a punitive tax rate.

The rules, scheduled to come into force next April, have drawn harsh criticism from the Association of British Insurers and the National Association of Pension Funds (NAPF). Both lobby groups for the retirement industry have argued that public perception of the pensions system risked being damaged and that the strength of company schemes could be eroded. The NAPF welcomed the committee’s report yesterday.

Theresa May, the Shadow Work and Pensions Secretary, told a CBI pensions conference yesterday that the Government was breaking the implicit understanding that savers should be rewarded for setting aside some of their income for when they retire.

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