Britain’s Financial Conduct Authority (FCA) is seeking views on an optional pension-fee exemption that could widen access to private markets while leaving savers exposed to added costs and investment risk.
The consultation, opened Nov. 12, would let qualifying performance fees sit outside the 0.75% annual charge cap on assets in default workplace pension schemes. It would apply only to qualifying default pension schemes operated by FCA-regulated firms. To qualify, a fee would have to depend only on improved investment performance, with its calculation method and payment timing agreed in advance.
The FCA says variable fees can make a cap breach more likely when private-market investments perform well, which may discourage schemes from considering those assets. The proposal would bring rules for contract-based pensions closer to those for trust-based schemes, where the Department for Work and Pensions (DWP) has allowed certain performance fees outside the cap since 2023.
Eligibility under the draft would hinge on managers agreeing to provide fee information on request; proposed guidance would call for providers to work with managers on fair fee allocation and monitoring valuation practices. Providers could not invest without confirming appropriate valuation policies and procedures.
The FCA’s 10-year analysis covers in-scope assets at Mansion House Accord firms. Eight of the accord’s 17 signatories operate contract-based schemes subject to the cap. For that scope, the regulator models a 2.1% increase in median net returns, with estimated benefits of £14.3 billion and present-value costs to savers of £5.5 billion for fees paid to asset managers. The central net present value is £8.8 billion. About 16.1% of simulated outcomes fell below the baseline, and the estimates depend on assumptions about returns and investment allocations.
Savers would pay the additional fees while asset managers would receive them. The FCA also identifies risks from illiquidity, uncertain valuations, manager selection and private markets underperforming. “People’s pension savings should work hard for them,” said Therese Chambers, the FCA’s executive director of enforcement and market integrity.
The consultation closes Jan. 14, 2027. The FCA expects to make final rules in summer 2027 after reviewing responses.