The Tapered Annual Allowance should be abolished to ease NHS burden - Ros Altmann

The Treasury has consistently tried to reduce the generosity of tax reliefs on pensions and, in recent years, has kept cutting the amounts that higher earners can contribute, supposedly to save money.

Above average earners can face a range of allowances that hit middle-ranking and senior staff and impose punitive rates of tax if they go over the limits.

Many of the most valuable staff are now frightened to do extra shifts or are being told that retiring early will mean they can escape the tax penalties. This undermines the rationale for tax-favoured pension saving and, because allowances have not been increased and the calculations are negatively affected by inflation and other complexities, the Chancellor is right to seek to urgently change the limits.

The complexity of the calculations for the Tapered Annual Allowance - and impossibility of knowing in advance of the tax year-end how much the Annual Allowance for the current year actually is – have resulted in higher paid staff in Defined Benefit schemes, like the NHS, receiving sudden demands for thousands of pounds from HMRC.

This shock has resulted in senior consultants or nurses being asked to pay more in tax than the extra they earned for agreeing to work extra hours. Unsurprisingly, they have decided they will refuse additional work, even when the NHS desperately needs this to be done.

Despite changes to tweak the Tapered Annual Allowance in recent years, it is just far too complicated and should simply be abolished, leaving only an Annual Allowance limit.

The NHS relies on quite a considerable amount of overtime work from senior staff and the operation of the taper has put that at risk.

Given that the Annual Allowance has been cut significantly in recent years, and in light of salary inflation, the Chancellor should agree to increase the Annual Allowance, enabling more people to increase pension contributions and build up a better pension as living costs rise.

Raising it from the current £40,000 a year to £50,000 a year would help more senior staff accrue better pensions.

Up to 2012, the Lifetime Allowance was £1.8m. It was then cut to £1.5m and has been cut further several times, now being little over £1m. Given the need to encourage domestic long-term investment, increasing the Lifetime limit significantly could help more people build a better retirement and make more funds available for domestic investment.

The Chancellor might also consider allowing some investments to be excluded from the Lifetime limit, such as small UK based start-ups or infrastructure and social housing, which could also add to the pool of domestic capital to boost green growth.

Baroness Ros Altmann is a British life peer and former pensions minister.