FCA proposes letting pension providers use performance-linked fees outside charge cap

The Financial Conduct Authority is consulting on allowing workplace pension providers to use certain performance-linked fees beyond the current 0.75 per cent default-fund charge cap, where doing so would deliver better outcomes for savers.

Around £1.5 trillion sits in defined-contribution pension plans across close to 30 million accounts in the UK — and the Financial Conduct Authority wants providers managing that money to have more room to invest it. The regulator has published proposals that would allow pension providers to use certain performance-linked fees outside the 0.75 per cent charge cap that currently applies to default funds in relevant workplace pension schemes, provided any additional cost is justified by additional value for savers.

The proposed exemption would be optional. Providers choosing to use it would be required to weigh up potential returns, risks and costs before applying performance-linked fees, and could not treat it as a general permission to raise charges.

One driver behind the proposals is the relatively low exposure to private-market assets in default funds. The FCA’s own asset-allocation survey found that responding providers held about 4 per cent of disclosed default-fund assets in unlisted private-market investments. Including listed investments in private-market asset classes, that figure rose to about 6 per cent. Greater flexibility on fees could, the FCA argues, allow providers to access a broader range of long-term assets.

Safeguards would come with the change. The FCA proposes greater transparency on fees, fair allocation of costs between savers, and scrutiny of private-asset valuations. Independent Governance Committees would need enough information to judge whether performance-linked fees are actually delivering value for money — a requirement that reflects how difficult such fees and private-market assets can be to assess from a consumer-protection standpoint.

Final rules are expected in summer 2027, subject to what the consultation responses show. The deadline for responses is 14 January 2027.

Key information

• Consultation deadline: 14 January 2027
• Final rules expected: Summer 2027, subject to consultation responses
• Who it affects: Providers of defined-contribution workplace pension schemes regulated by the FCA
• FCA consultation documents are available via the regulator’s official website at fca.org.uk