According to a recent report, the new £1m lifetime limit on pensions will prevent senior medical staff from building their retirement fund, giving them less motivation to keep working beyond their fifties.

It has been alleged that the reduction in the lifetime pensions limit from £1.25m to £1m in 2016, announced in this year’s Budget, will persuade thousands of GPs, consultants, and dentists to take early retirement, leaving the NHS short of crucial staff.

This is because these professionals have generous guaranteed pensions, many of which will grow big enough to go over the limit before they reach 60, leaving them with a potentially huge tax bill, as pension money that exceeds the limit is liable for 55 per cent tax.

As the report flags up, people whose defined benefit pension is worth more than around £50,000 a year will exceed the £1m lifetime allowance. The total value of these pensions is calculated by multiplying the annual pension by 20, then adding any additional tax-free cash. So, for example, a defined benefit scheme that will pay £40,000 a year is worth £800,000 in relation to the limit.

Such pension arrangements typically replaces between half and two thirds of someone’s final salary in retirement, but the number of doctors earning six figure sums has quadrupled over the past decade. In fact, according to official documents, more than 16,000 GPs earn in excess of £100,000 a year, including more than 600 on more than £200,000.

The new rules are likely therefore to cut a significant number of medical professionals’ savings short, pushing them towards early retirement, which is the unintended consequence of an understandable change to the pensions system.