The Government is seriously considering imposing an earnings cap on pension rights in next week's Budget, while it may also be looking at changing the rules governing the purchase of pension annuities.

A cap would mean that someone earning, for example, £100,000 would only be able to claim a pension of £50,000 or £60,000. The move would save some money in terms of public sector pensions at the top end of the range, but would also put a halt to the well-paid sheltering money in pensions. The self-employed already have a limit, and the new move would be targeted at directors of limited companies. Many of these have been using a loophole which allows them over 100 per cent of their salary in pensions.

Directors close to retirement often choose to boost their salary substantially in the years coming up to retirement, negating the impact of the two-thirds limit.

Mr Alan Hardy, a partner at PriceWaterhouseCoopers, said the possibility that earnings for pension purposes will be capped means it would be prudent for anyone not in a pension scheme to be in one by Budget Day, assuming the legislation is not retrospective.

Mr McCreevy may also be considering changes to the rules and legislation relating to the purchase of annuities with pension funds.

At present, retirement funds are used to purchase an annuity with a life insurance company which guarantees the pensioner a return for life. But the current low interest rate environment has seen the cost of annuities rise. Ms Helen Gray of Newcourt Pensioneer Trustees has spent the last two years lobbying for the abolition of compulsory purchase annuities. "I have proposed that the pensioner's capital sum be invested in funds which offer a capital guarantee instead of seeking to guarantee the pensioners' income. This new system should lead to better returns for the pensioner." Mr Creevy's response, she says, has been very positive. "As an accountant, he understands there is an urgent need to change the law and as Minister for Finance he is in a position to do so."

Howeever, the Society of Actuaries in Ireland has warned that a detailed study should be undertaken by Government before any decisions are made.

It is concerned that an annuity deferral scheme may be introduced which would allow individuals to defer the purchase of their pension annuity until the age of 75, with income provided in the interim by a five-year temporary annuity.

In its submission to a Government working group considering the issue, the society describes such an approach as "fundamentally flawed".