Webb has achieved far more pension revolution than anyone would have expected, but this is where the line should be drawn. An interesting theoretical debate, but 30 per cent tax relief is years away and should not concern hard working IFAs.
Scrapping the lifetime allowance, however, is a great idea. Having a limit to the amount of tax-free savings is, as Mr Webb pointed out, ‘illiberal’ and contradictory to the general thrust which is to encourage everyone to save as much as is feasible into a pension. The tax benefits of the lifetime allowance are circular, as the more money that is earned by saving, the more is available to be spent after retirement, at which point it is recycled back into the economy and the overall impact is multiplied.
As a result, the lifetime allowance is a confusing, inefficient tax, the removal of which would be very easy to achieve. The impact could be enormous for IFAs, seeing wealthy individuals pouring cash back into their pensions with no fear of penalising taxes and safe in the knowledge that the money will be readily available in the future thanks to the Budget reforms governing annuities.
If the government takes a holistic approach to its sums, it should find that scrapping the lifetime allowance is in everyone’s interest. This one could be big – IFAs should watch this space carefully.
Overall, taking these and the wider reforms to annuity and drawdown rules together, the direction of travel is favourable to IFAs in theory. But that is only true if IFAs are able to adapt their services, and the marketing of their services, in order to dovetail with the new landscape. By working with a free guidance service, not against it, and providing a full view of retirement options, not just equity-based drawdown, IFAs should be in a position to provide a valuable contribution to the pensions revolution while benefiting from their own business growth.
Key to success will be focusing on the changes that matter, not getting stuck into academic debates that do not.