Workplace pension providers could have
greater flexibility to invest for the long term under proposals
from the Financial Conduct Authority (FCA), helping them deliver
better outcomes
for savers while ensuring savers'
interests remain
protected.
The FCA is consulting on excluding
certain performance-linked fees from the charge cap for default
funds in workplace pensions it
regulates.
Performance-linked fees are common in
private markets, including private equity, venture capital and
private credit. The proposed change would give providers greater
flexibility to access a broader range of investments where this
could help improve long-term returns and value for
savers.
The FCA is clear that greater
flexibility is not a licence to charge more. 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 is proposing 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.
Therese Chambers, executive director of enforcement and market
integrity at the FCA, said:
"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."
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.
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. Providers should
do so only where it is in savers' interests, and they can meet
the relevant protections.
The FCA is seeking responses by 14
January 2027 and currently expects to make final rules in summer
2027 following consideration of
feedback.
Notes to
Editors
-
In 2023, the Government changed the
rules so certain performance fees sit outside the limit on
charges, with protections for members. The proposals build on
changes made for trust-based schemes in 2023, while reflecting
developments in private markets and strengthening protections
in areas such as how investments are valued.
