THE PENSION system across the UK should have a single and simple over-riding purpose: to encourage and incentivise people to save so they can afford the retirement they aspire to. Saving for your own retirement means you’re less reliant on the state in future years and should be recognised as “doing the right thing”. And, with people on average enjoying longer lifespans, the message should be to save as much as you can into a pension.

Unfortunately, pensions, or more specifically the tax rules around them, are far from simple. There are valuable tax savings linked to pensions and successive Chancellors have often been more focused on what they are losing in terms of collecting less income tax from pension savers than in thinking about the long-term social good of individuals saving for their retirement futures. This has resulted in various restrictions being introduced only to be changed shortly afterwards to counter the unintended consequences of the previous changes.

And there’s one particular tax technicality that has been making the headlines recently because it has created a situation that not only penalises good pensions-saving behaviour, but creates a tax burden on those that fall foul of it. The issue centres on complex annual limits on how much someone can save in their pension without incurring tax penalties. It first came to prominence as an issue affecting higher-paid NHS professionals, but it’s certainly not limited to doctors and many are now calling for changes to this aspect of the pension-tax system for all.

The issue at the eye of the storm is to do with a complicated addition to the rules introduced in 2016, known as the tapered annual allowance. The rules are too complex to cover fully here, and if you think you may be affected, you should seek financial advice. Broadly speaking, it can affect those whose income after pension contributions is above £110,000, with the standard allowance tapering down from £40,000 to a minimum of £10,000.

The logic behind setting limits on pension contributions is to limit the amount of pension tax relief the Government pays to higher earners. But the taper is having the unintended consequence of adversely impacting an already-stretched NHS. Senior doctors who are close to breaching their annual allowance and subsequently facing a hefty tax bill are deciding to cut back on the amount of work they do or, worse still, are retiring early.

The experience in the NHS shows that it’s an issue affecting the retirement plans of not just the super wealthy. If left unchanged, this technical measure will continue to impact people’s lives.

While it’s the plight of healthcare professionals that has put the issue firmly on the radar, now is the time to revisit the current pension tax system for everyone, not just those in any one profession. Offering special concessions to NHS professionals may address concerns over early retirements there, but should pension rules vary by occupation? Doing so would create both complexity and unfair comparisons with those affected in other professions.

So what’s the solution? One approach offered by some employers in the private sector is to allow individuals affected by this to swap future employer pension contributions for an increased income. We’re keen to see this extended to those in the NHS scheme and other public sector employments.

But while this would save NHS professionals from facing the unenviable choice of paying more tax or giving up work, it doesn’t address the broader issue the tapered allowance creates for pension savings generally. It detracts from that simple starting point that saving for your retirement is a good thing and should be seen as such.

Yes, all governments have budgetary constraints to live within, and they need to make sure the tax system is fair across wealth bands. But when pension tax rules become so complex that they discourage doctors from taking on extra work, then something has gone very wrong.

It’s time to take a step back and make sure the pension tax system does what it was intended to do and that’s incentivise people to save more, not less, for their retirement.

Steven Cameron is pensions director at Aegon.