The charge cap was introduced in 2015 and limits member-borne scheme and investment administration charges to 0.75% of funds under management in DC defaults. In 2023, the Department for Work and Pensions (DWP) exempted certain performance fees from the charge cap for trust-based schemes.

The FCA said some schemes are keeping charges low by avoiding investment in private assets which can generate unpredictable costs, including high performance fees from particularly strong returns.

The FCA, which regulates contract-based pension schemes, proposes aligning the definition of performance fees exempt from the cap with the definition for trust-based schemes regulated by The Pensions Regulator.

It said that

“greater alignment would support competition and choice and reduce unnecessary complexity for providers operating across both parts of the market”.

Under the FCA’s proposed definition, fees would qualify for exemption if they were “calculated solely by reference to increases in performance” and if a “minimum set of requirements” were pre-agreed between the manager and the provider.

These pre-agreed terms would ensure the provider understands and agrees how fees are to be calculated and how and when payment is due.

Changes put forward in the consultation also include a “transparency and look-through disclosure“, which would impose an information sharing obligation for providers to request information on performance fees from funds to assess value and member fairness.

The proposal includes a requirement that scheme providers should carry out due diligence of managers’ valuation governance and not proceed with any investment where they cannot establish that “appropriate policies and procedures” are in place.

The consultation document said that where members are invested in default funds, they will not have actively chosen to be exposed to such investments. It said: ”

This underlines the need for proper consumer protections so higher charges are only paid where there is a strong probability of better returns for investors.”

It also said that

“wider work to support increased professionalism of pension providers should also help mitigate the risks associated with investing in private assets”.

The government has sought to encourage the investment of pension capital in UK private markets, and the Pension Schemes Act 2026 included a reserve power to mandate the investment of DC workplace pension assets into private markets.

This power acted as a backstop to the voluntary, industry-led Mansion House Accord, launched in May 2025 and coordinated by the Association of British Insurers (ABI), Pensions UK and the City of London Corporation.

The commitment saw 17 signatories pledge to hold 10% of DC pension assets in private markets by 2030, with 5% in UK private markets. The latest data found that signatories held £22.1bn of DC growth-phase assets in global private markets, with some £11.1bn of this invested in the UK.

Standard Life product director Jenny Holt said:

“Addressing barriers associated with the charge cap should also help the industry support its Mansion House commitments, by making it easier for schemes to access a wider range of private market opportunities.”

ABI long-term savings policy adviser James Wilson said about the FCA’s proposals

“The change would help group personal pension providers diversify investments, to improve long-term outcomes, allowing greater access to a wider range of assets, including private equity, venture capital and infrastructure.”

Holt and Wilson both called for consistency across the framework, so that regulators can adopt any new protections in lockstep and all savers have access to the same range of investment opportunities.

Pensions UK director of policy and regulation Phil Brown said that greater consistency across the FCA and TPR regimes should support a wider shift in assessing investment from cost considerations to long-term value.

Brown also said the industry body welcomed proposals to strengthen transparency, valuation governance and due diligence for private market investments.

While he said greater transparency and oversight can improve confidence in private markets, they cannot

“remove the inherent liquidity characteristics of these assets, which schemes need sufficient flexibility and capability to manage within their overall investment strategies”.

Broadstone head of DC proposition Kelly Parsons welcomed the proposals’ recognition that

“the cheapest pension investments do not necessarily deliver the best outcomes for savers”.

She said:

“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.”

The consultation closes on 14 January 2027 and invites responses from trustees and sponsors of trust-based schemes, pension scheme service providers, firms operating contract-based workplace pensions, independent governance committees and private asset fund managers, among others.

The FCA expects to make final rules in summer 2027.