Due to the furious leaking that’s been going on over the past week, we knew quite a lot of what was going to be in the Budget already.

While there were probably fewer personal finance announcements than might have been expected, there were still a few things of note that will be of interest to the financial services industry.

Obviously, everyone is now hoping we are firmly in a post-Covid environment, and the Budget did have some reasonably positive messages on that front.

The overall economic scarring from Covid appears to be less than anticipated, with stronger growth forecasts and unemployment not as bad as everyone first feared. There were also specific support measures such as the new business rates improvement relief.

But one of the more interesting aspects to all this is we now appear to be moving to an economic environment with inflation running higher than we’ve seen for the last decade, which could mean interest rates are set to follow.

So the cost of living, particularly if you’ve got a fairly chunky mortgage, is only going to go in one direction. Amid all the soundbites about levelling up, that impact of rising inflation will be one to keep an eye on over coming months.

What caught our eye

There were three things that jumped out from the chancellor’s speech from a financial services perspective:

1) The confirmation of the changes to the triple lock, which will see the earnings element suspended for 2022/23. That move is going to save the government £5.4bn in the first year, rising to £6.7bn for 2026/27 (assuming it’s kept as a ‘double lock’ for that period). It may be that we get into a similar situation as the fuel duty escalator, where every year the government says: “We’re keeping it as a double lock for another year.” That remains to be seen, but in the meantime it’s saving the government a great deal of money.

2) The announcement of a consultation on the pension charge cap, which Rishi Sunak says will “unlock institutional investment while protecting savers”. This is interesting, albeit quite complicated and something that could potentially become quite significant. More on that below.

3) The plans mentioned within the Budget documents to offer a 20% top-up for people paying into pension schemes on a net pay basis. The fact that some lower earners were missing out on tax relief is an issue that’s really irked a lot of people in the pensions industry. The government isn’t going to address this until April 2024, with the move costing around £10m a year. So it’s not big money, but it is good to see the hole in the system that was disadvantaging lower earners being closed off.

The charge cap review on closer inspection

As things stand, the charge cap for savers in default funds in workplace pensions is set at 0.75% of funds under management, or an equivalent combined charge.

At the moment schemes are allowed to deduct other charges, such as a monthly fixed fee or a contribution charge as Nest does, as long as the overall effect of a combined charge is equivalent to 0.75%.

The Department for Work and Pensions has been contemplating a move to harmonise that, and just have one percentage-based charge every year and get rid of the fixed fees.

This makes sense in terms of being able to compare one scheme with another.

But as soon as you do that, you introduce more complex cross-subsidies into the system. It could actually make the cost of running pension schemes higher in some cases, as the size of some pots means having a fixed charge makes it easier and more efficient to run.

Alongside that, the government has been talking about introducing performance fees, because that will open the door to things like patient capital, and to infrastructure and long-term investing.

The government is desperate to see pension schemes, with the trillions of pounds behind them, ploughing some of that money into helping Britain level up, and build back greener and better.

The trade-off is saying to the pensions industry that perhaps if we allow you a bit more flex on the charges, things like performance fees would sit outwith the current charge cap. And could you please spend some of that money over here?

So all of that is swirling around in those few lines from the chancellor on a charge cap review, and we’ll get that consultation at some point in the next few months.

There's quite a lot of disquiet around this from many in the industry and outside it, who have been arguing for charges to come down, not go up.

This may be making a bit of a pact with the devil here. It might suit the government's agenda, but it's not necessarily good for investors. So there’s likely to be mixed feelings around this particular initiative.

The liquidity debate

Staying with the issue of long-term investing, the pieces are now all there on the chessboard for this to take hold. It’s just a case of whether the industry wants to play the game.

The FCA published a policy statement this week on long-term asset funds. This is aimed at institutional and professional investors for now, with a promise to consult on whether these could also be available to retail investors.

There will be lots to consider as part of that consultation, including around the issue of target market suitability, and assets that are designed to be held for the long term being bought by retail investors who tend to hold investments for a much shorter term.

By their very nature, long-term investments are going to be illiquid, and that feeds into discussions around both value for money and the planned Consumer Duty.

For example, is it value for money to pay a little bit more to invest in something that in the long term is going to give a greater potential return?

In the fallout from the Neil Woodford saga, illiquidity was seen as a bad word. And yet over time, some of those illiquid assets sold for a chunky profit.

That’s how these organisations work; they start to build capital and grow, and then suddenly they’re a good thing to be getting into. It’s an interesting debate for the sector to be having.

The buried stuff

Hidden in the supporting documents was one unwelcome announcement.

The Treasury has confirmed its intention to proceed with raising the minimum age at which you can access your private pension savings from 55 to 57.

This in itself is relatively uncontroversial; we’re living longer on average, so leaving your pension pot till a bit later makes sense.

The problem is the way the Treasury has gone about this, building in exemptions and protections which will have knock-on consequences for those who run pensions or advise individuals on them.

These complicating exemptions could also cause problems for policy initiatives such as the pension dashboards and the simpler annual benefit statements, of which the pensions minister has been an enthusiastic proponent.

We only have draft legislation for now so there may still be time to lobby HMRC and the Treasury on this issue, but it feels as if the door is closing.

Final thoughts

Overall, we’re still trawling through the Budget small print and supporting documents.

But a lot of financial services people will be pretty relaxed that nothing radical seems to be coming our way off the back of the Budget.

In Budgets gone by, we have seen a lot of change for advisers, platforms and providers to deal with. Even tweaks to allowances take time and effort to communicate. Change isn’t always good.

So feel free to carry on as you were, and maybe enjoy a cheaper pint of beer while you’re at it.