"However, tax is a natural brake on them spending their pension fund too soon..."

But sources indicated that the chancellor is still reviewing a series of policies that could transform the pensions system, including the ISA proposal and plans for offering a single rate of tax relief on contributions for all savers. This is likely to be particularly bad news for anyone who becomes a higher rate taxpayer towards the end of their working careers when they are most able to catch up on their pension funding.

Pensions and Lifetime Savings Association chief executive Joanne Segars added: "We'll have to wait for the Budget on 16 March to get the full details but if the Chancellor has indeed decided not to meddle with tax relief on pensions he is to be applauded". 'This is built on a framework of tax relief that supports businesses to do their bit - we would not want to see that change.

The idea was mooted in 2015 and a consultation into pensions tax relief was launched last summer - but p ension experts warned that if such a move happened it could lead to a Northern Rock-style run on the pension system and mass withdrawals.

"What may be better would be for the Government to add some sort of terminal bonus to such a pot, in the same way as the new Help To Buy ISA operates'".

Mick McAteer, of the Financial Inclusion Centre, said he was "very disappointed" that the Government had stepped away from tackling the "clear inequality in our pension system".

But there was criticism of Mr Osborne's proposals, already challenged by the current Pensions Minister, former campaigner Baroness Altmann, from within the pensions industry.

Nitish Kumar slams NDA over EPF tax, says it will harm youths
By referring to the representations and talking of levying the proposed tax on returns, it is trying to mollify the critics. The excluded employees would primarily be the ones drawing statutory wages of up to Rs 15,000 per month.

An ally of George Osborne's said: "George has always been clear he wouldn't do anything to damage saving".

"After almost a year of uncertainty what savers need more than anything is a period of stability". One of the worries was that the Chancellor wouldn't just take the existing pot and just reallocate it but he would take billions out - there really are tens of billions of pounds at stake in tax relief.

"This scheme might save the chancellor some money but only at the expense of the country's long term retirement plans", McPhail said.

"By contrast, the flat rate scheme would be more workable but perhaps wouldn't have met the Chancellor's ambition for truly radical reform".

It is the latest big decision to be delayed or dropped before the European Union referendum.

This is not the first time that Osborne drops plans from economic reforms.

Osborne's main rival for the leadership of the Conservative Party, Boris Johnson, is backing the "out" campaign. "First he bungled tax credits, now he is botching true reform of our pension system".