The regulator’s charge cap consultation signals a shift from cost-cutting to value
The Financial Conduct Authority (FCA) has opened a consultation that, on the surface, is about pension investment rules. But what it signals about how the regulator now thinks about fees, consumer protection and market flexibility matters well beyond pensions — and UK mortgage brokers and advisers should take note.
The proposal, published on 12 November, would exclude certain performance-linked fees from the charge cap that applies to default funds in workplace pensions the FCA regulates. The charge cap — currently set at 0.75% annually — was introduced to stop savers being hit with excessive costs in auto-enrolment schemes. It has largely worked.
But it has also had a side effect: pension providers have been reluctant to invest in private markets such as private equity, venture capital and private credit, because those asset classes typically carry performance fees that push total charges above the cap.
The FCA wants to remove that barrier, giving providers the option — not the obligation — to access a wider investment universe where it can genuinely improve long-term returns for savers. Final rules, if the consultation proceeds as planned, are expected in summer 2027.
What this means for savers — and the clients you advise
For anyone with a workplace pension, the change could mean their retirement pot is invested in assets that were previously off-limits. According to the FCA’s own modelling, cited in consultation paper, the projected gain could be around 2% more in a pension pot over ten years. That is a modest uplift — and the FCA is not pretending otherwise.
The regulator is also explicit that this is not a green light for providers to raise charges across the board. 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.”
Freedom tied directly to accountability will be familiar to any broker operating under Consumer Duty. The obligation is to act in the client’s best interests. FCA is now applying the same test to pension providers that it has long applied to advisers.
Why the playing field has been uneven until now
To understand why this matters, it helps to know what the current rules actually prevent. Trust-based pension schemes — those governed by employer trustees and overseen by the Pensions Regulator — have been able to exclude certain performance-linked fees from the charge cap since 2023. That means occupational pension schemes run by large employers have had access to private market investments that contract-based providers, typically insurance companies regulated by the FCA, have not.
The result has been a two-tier pension landscape. Savers in trust-based schemes have potentially had access to a broader, higher-returning investment universe. Those in FCA-regulated contract-based schemes — which cover a significant portion of the UK workforce — have not. The FCA’s proposal is designed to close that gap and, in doing so, reduce what it calls “unnecessary complexity for providers operating across both parts of the market.”
For brokers who advise clients on protection and later life planning, understanding which type of scheme a client holds are increasingly relevant. The regulatory treatment of those schemes is diverging in ways that could affect client outcomes, and, by extension, the advice given.
Governance is the real test, not the fee flexibility
The more consequential part of this consultation is not the flexibility itself; it is the governance framework the FCA is wrapping around it. Providers that choose to use the exemption will face strict requirements on transparency, fair allocation of fees between savers, and scrutiny of how private assets are valued. Independent Governance Committees (IGCs) must have access to sufficient information to assess whether performance-linked fees genuinely deliver value for money.
Private market assets — infrastructure, private credit, venture capital — are notoriously difficult to value. Unlike listed equities, there is no live market price. Valuations are often quarterly, model-based and subject to significant discretion. The FCA’s insistence on robust valuation oversight is a direct acknowledgement that greater investment flexibility without proper controls creates real risk for savers.
The broader FCA mortgage rule review reshaping broker obligations in 2026 follows the same logic: more flexibility in how advice is delivered, but tighter accountability for outcomes.
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