The Financial Conduct Authority is consulting on whether to exclude some performance fees from the charge cap on defined contribution default options, to bring the regime for contract-based DC into line with that for trust-based schemes. At the same time, it plans to improve transparency so schemes can assess if higher fees really translate into value. The consultation closes on 14 January 2027. 

The FCA launched the consultation on Thursday and expects to make final rules in the summer. 

The regulator said performance-linked fees are common for private market assets, such as private equity, venture capital and private credit. Such fees were excluded from the 0.75% charge cap for trust-based schemes in 2023, as governments of the past few years have sought to channel people's retirement savings into illiquid assets. 

The FCA stressed, however, that any higher charges should be justified by additional value delivered to savers.  

"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," said Therese Chambers, executive director of enforcement and market integrity. "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." 

With illiquid assets often not producing returns for several years and firms valuing the assets themselves, assessing that value could be tricky. Opacity is often cited as an obstacle when it comes to asset classes like private equity.  

The FCA is therefore proposing new measures to increase transparency, fair allocation of fees between savers and scrutiny of how private assets are valued. Under its proposals, providers and independent governance committees would get access to information needed to assess whether performance-linked fees offer value for money.  

The consultation suggests that performance fees would only be exempt from the charge cap where fund managers have agreed to disclose information relating to the performance-based fee on request. The FCA would issue guidance setting out that adequate disclosure, applying to funds and sub-funds, would include: 

Kelly Parsons, head of DC proposition at consultancy Broadstone, welcomed the proposals as  recognition that the cheapest pension investments do not necessarily deliver the best outcomes for savers.  

 

“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," she said.   

  

“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," Parsons added.