Experts said using a multiplying factor of 20 to calculate the effective value of defined benefit pensions was no longer appropriate.
The Telegraph’s pensions doctor Kate Smith, of pensions firm Aegon, said a “fairer” factor to use would be 30. This is closer to the multiple used when savers transfer out of a defined benefit pension scheme, trading guaranteed income for a pot of cash.
Had Shaun Beal, a merchant sailor from Doncaster, stuck with his £40,000-a-year gold-plated pension he would have escaped the tax, as it would have been valued at £800,000 against the lifetime allowance. However, when he transferred to a private pot it was valued at £1.16m, so the 62-year-old will face the charge when he turns 75.
Mrs Smith said: “The current low-interest, high-inflation environment set against a frozen and much lower lifetime allowance, combined with people living longer, makes the disparity even more stark.”
The cap has been cut three times in the past decade, from a 2011-12 high of £1.8m.
David Stevens, of LV, urged the Government to scrap the lifetime allowance for defined contribution pensions as it “penalised good investment decisions”. He added: “Unless we see a reversal in the current trend from the Treasury, more younger pension savers will be affected.”
The freeze will catch an extra 400,000 workers, affecting 1.6 million people, said former pensions minister Sir Steve Webb, of consultancy LCP. The cap was designed to only affect the 5,000 wealthiest people.