Teacher unions had warned the proposed change, affecting additional voluntary contributions (AVCs), was unjustifiable and possibly illegal.
It has now been dropped - to the relief of teachers, several of whom wrote to The TES. The new regulations took effect this month.
Barry Fawcett, assistant general secretary of the National Union of Teachers, said: "We can't understand why the Government made this proposal in the first place. However, we are delighted that, following our representations, they have now dropped it."
The NUT estimates that nearly half of teachers top up their pensions via AVC schemes. The in-house scheme for teachers is run by Prudential, but they can buy into other schemes as well.
Effectively, teachers pay additional contributions into a fund which, on retirement, is used to buy an annuity. There are no matching contributions from the pension scheme.
The Government had proposed that, if a teacher ied in service, his or her family should receive only five times the value of the annuity that could be bought with the accumulated fund - rather than the full value of the fund itself.
But Mr Fawcett was disappointed that other recommendations made by the unions were not taken up by ministers.
In particular, teachers who accept reduced pension benefits ("actuarially-reduced pensions") in order to retire earlier, but then go back into employment, will not be able to buy "extra" pension years - although they will be able to payadditional voluntary contributions.
Teachers who have returned to work after retiring early or at the usual age are able to buy these extra pension years - and there is no cost to the pension fund. The unions are concerned that the restrictions on those who have retired on actuarially-reduced pensions will discriminate against women, who tend to have more breaks in service.
But their biggest worry remains that teachers will take up the offer of leaving at 55 on an actuarially-reduced pension, without thinking through the financial implications.