THE lifetime allowance, which was introduced by the Labour Government in 2006, was always supposed to be a tax on the pensions of the rich.

Set initially at £1.5 million, it was put in as the threshold at which those with very large incomes - and so very large pension pots - would have to pay an extra sum into the public purse when they started to draw their pensions.

The problem is, as the total pot a person can accumulate without having to pay that extra tax is currently set at £1.03 million (£1.055m from next month), it is not just the so-called super-rich who are now being affected, with someone retiring after 40 years on a final salary of £100,000 - or a shorter period on a higher salary - likely to be hit.

Senior doctors - who are also hit by the tapered annual allowance, which reduces the tax-free amount that anyone earning over £110,000 can save into a pension each year - are among them. According to Andrea Sproates of advisory business Chase de Vere Medical, some are taking drastic measures as a result.

“We’ve noticed a significant increase in the number of doctors deciding to stop contributions into the NHS pension scheme, or even taking the step to retire early, because of lifetime and annual allowances tax charges, including the tapered annual allowance which was introduced in 2016,” she said.

A Freedom of Information request carried out by industry publication the Health Service Journal found that nearly 250,000 workers in England opted out of the NHS pension scheme between 2016 and 2018.

While figures for Scotland are not available, Simon Barker of the British Medical Association’s (BMA) Scottish consultants committee believes the situation could be more acute here because Scottish higher and additional tax rates, on which pensions tax relief is calculated, are each one percentage point higher than south of the Border.

“In Scotland we face higher marginal higher income tax rates than the rest of the UK, making the whole thing worse, I’m afraid to say,” he said.

Although some people opting out of the NHS pension will be junior staff who feel they cannot afford to make monthly pension contributions, the BMA has warned that the number of opt outs from consultants at the senior end will end up having a detrimental effect on the health service itself. The only answer, the trade body has claimed, is for the tax regime to be reformed.

Writing to Chancellor Philip Hammond ahead of this week’s spring statement, BMA council chair Dr Chaand Nagpaul urged him to take action to mitigate against the “significant impact” the “punitive” measures are having.

“We are deeply concerned that doctors across all branches of practice, working across the NHS, are facing the dilemma of incurring a disproportionate and ever-expanding pensions tax bill or cutting short their service to the NHS, reducing hours or turning down additional work, much of which is carried out to reduce waiting times and ever-growing clinical lists,” he said.

“This can only be to the detriment of patient services. At a time when the NHS is in the midst of a workforce crisis and recruitment and retention are an NHS priority, we are calling for Government to look again at the use of such counteractive and punishing pension taxation policies."

Yet while, perhaps unsurprisingly, Mr Hammond made no mention of pensions in his spring statement, pensions consultant John Ralfe said the situation for those working for the NHS is perhaps not as bad as the BMA is making out.

Noting that the pension issue has become “the straw that broke the camel’s back” after “all sorts of issues” have accumulated in the NHS over the past 20 years, Mr Ralfe said that regardless of the tax treatment that applies to all pension savers, “the pension that consultants get is still spectacularly generous before tax”.

“Even after tax it’s still a damn sight better than if they take those contributions and put them in a building society or anywhere else,” he added. “If you’re a doctor you shouldn’t let the tax tail wag the pension dog.”

Nevertheless, Ms Sproates believes that if no action is taken - either by the Government or doctors themselves - it is the health service that will ultimately suffer.

“It is the most experienced doctors who are affected the most as they have higher earnings and have already accumulated greater pension benefits. This also means that they will be most able to retire,” she said.

“This is what we’re seeing and action needs to be taken in terms of reviewing pension tax charges and encouraging doctors to seek independent financial advice.

"If this doesn’t happen we will continue to deplete our health service by driving some of its most experienced, talented and valuable professionals away.”