The move follows the scrapping of child benefits for higher earners last week and may provide political cover for the coalition government to say its cuts are fair when finance minister George Osborne presents his spending review on Oct. 20.

The government also said on Thursday that it would abolish, merge or reform 481 semi-independent agencies, proposals likely to cost thousands of jobs.

This follows reports on tackling government waste and charging higher university fees this week, all of which help set the scene for the government to cut most departmental budgets by a quarter or more.

In view of the tough economic climate, even the queen is making cutbacks. A spokeswoman said on Thursday that Queen Elizabeth has canceled a planned Christmas party at Buckingham Palace given the difficult circumstances facing the country. The Treasury said in a statement on its website that it would cut the annual allowance for tax-privileged pension savings to £50,000 from £255,000 starting in April 2011.

It said this would affect 100,000 people, 80 percent of whom earn more than £100,000. It will also cut the lifetime allowance to £1.5 million from £1.8 million from April 2012, raising in total £4 billion a year.

The pensions reforms may well infuriate many higher earners, who make up the traditional support base of Osborne’s Conservative Party, the senior partners in the coalition government that took office in May.

Many newspapers have already gone to war with the government over its plans to scrap child benefit for anyone earning over £44,000. Treasury officials insist that the moves are fair and unavoidable, and that this will become apparent when people see what is coming on Oct. 20. Osborne is expected to take an axe to the welfare bill.

Business groups welcomed the changes to the legislation, saying they could have been much worse. “Today’s announcement is not as bad as feared. The government had considered making the annual allowance as low as £30,000,” said John Cridland, CBI Deputy Director-General.

But the opposition Labour Party said the moves would hit some families on modest incomes. “Under our plans, no-one earning under £130,000 would lose out,” said David Hanson, a Labour treasury spokesman.

“Now everyone’s at risk because the government is taxing on the basis of people’s wish to save for a pension, rather than because they are high earners.”