The government needs to introduce more incentives to save, not remove those that already exist. Mary Francis, ABI

The tax changes in question would affect those who use life insurance savings policies, such as with-profits bonds and endowments, either to build up a nest egg throughout their working lives or to supplement their pensions in retirement.

They were proposed last summer in an independent review of the long-term savings industry and may be under consideration for the Budget.

The Association of British Insurers (ABI) believes it could mean pensioners face higher tax bills and saving could become more complicated.

Saving incentive

Under current rules, savers in a number of life insurance products can take up to 5% of the amount saved each year without immediately paying tax on it.

The values of such withdrawals are instead added up by the insurer and get taken into account when the policy is cashed in completely.

The ABI estimates that there are currently around two million people taking regular withdrawals of 5% a year or less from life savings policies.

According to its data, 90% of them are basic rate taxpayers, and around half are over 65 years old.

Mary Francis, director general of the ABI, said: "To tackle the pension crisis, the Government needs to introduce more incentives to save, not remove those that already exist.

"Ron Sandler's proposals were intended to make the tax for life policies simpler, but in fact they would make savings more complicated and less rewarding."