The UK's Financial Conduct Authority (FCA) has launched a consultation on excluding certain performance-linked fees from the charge cap for default funds in the workplace pensions it regulates.

The proposals are intended to give workplace pension providers greater flexibility to invest for the long term, helping them deliver better outcomes for savers while protecting savers' interests.

The proposed change would give providers more flexibility to access a broader range of investments, which could help improve long-term returns and value for savers.

However, the FCA warned that greater flexibility is not a licence to charge more, stressing that providers should “carefully weigh” potential returns, risks and costs when making investment decisions, and any higher charges should be justified by the additional value delivered to savers.

Alongside the proposed flexibility, the FCA has proposed safeguards covering transparency, fair allocation of fees between savers and scrutiny of how private assets are valued.

Providers and independent governance committees would need access to the information necessary to assess whether performance-linked fees offer value for money.

The proposals would bring FCA rules more closely into line with the regime for trust-based pension schemes, where certain performance-linked fees have been excluded from the charge cap since 2023.

The FCA argued that greater alignment would support competition and choice and reduce unnecessary complexity for providers operating across both parts of the market.

The proposals would give providers an option, not an obligation, to use the exemption.

FCA executive director of enforcement and market integrity, Therese Chambers, commented on the proposals: "People's pension savings should work hard for them. We want providers to have greater choice over how they invest for the long term where this can deliver better outcomes for savers.

"But greater flexibility is not a licence to charge more. Any higher charges must be justified by additional value, with firms carefully weighing returns, risks and costs when deciding what is in savers' best interests."

Meanwhile, Broadstone head of DC proposition, Kelly Parsons, described the proposals as a "welcome recognition" that the cheapest pension investments do not necessarily deliver the best outcomes for savers.

"Excluding certain performance-linked fees from the charge cap could open up a broader range of investment opportunities, giving providers greater scope to generate stronger returns for members over the long term," she continued.

“Private market investments can offer valuable diversification and access to growth opportunities, while potentially unlocking more pension capital for investment into UK businesses and infrastructure. However, providers must ensure that any increase in fees is justified by better outcomes for members.

“Robust governance, transparency and scrutiny of investment performance will be essential, while aligning the rules for contract-based and trust-based pensions should help create a more consistent regulatory framework across the market.”

The FCA is seeking responses by 14 January 2027 and currently expects to make final rules in summer 2027 following consideration of feedback.

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