The FCA Proposed on 12 November to Exempt Performance Fees From the 0.75% Workplace Pension Charge Cap, With Comments Due 14 January 2027: What Fund Managers Should Check

On 12 November 2026 the Financial Conduct Authority published consultation paper CP26/40, which proposes to exempt certain performance fees from the charge cap on default funds in the workplace pensions it regulates. The cap limits charges to 0.75% of funds under management, which is £7.50 a year on every £1,000 invested, and the regulator says it currently limits schemes from considering asset classes where performance fees are common, including private equity, venture capital and private credit. This is a proposal, not a rule. Comments are due by 14 January 2027, 63 days after publication, and the regulator expects to make final rules in summer 2027.

What the FCA proposed, and from when

The charge cap was introduced in 2015 for workplace default funds. In 2023 the Department for Work and Pensions exempted certain performance fees from the cap for trust-based schemes, with protections for members. The FCA's paper proposes to replicate that exemption for the contract-based workplace schemes it regulates, so that the two parts of the market work alike. The FCA says the change gives providers an option and not an obligation, and that they should use it only where it is in savers' interests. It also states that greater flexibility is not a licence to charge more, and that any higher charges must be justified by the additional value delivered.

Alongside the exemption the FCA proposes safeguards on three points: 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 required to judge whether performance-linked fees offer value for money. In a limited number of areas the FCA also proposes additional clarifications reflecting market developments since 2023 and recent supervisory insights. The paper lists private asset fund managers among the audiences it wants to hear from.

Why the cap matters for a performance fee

As an illustration only, and not a figure from the FCA: a performance fee equal to 1% of a scheme's holding in that fund in a strong year would, on its own, be more than the whole 0.75% cap. That is the arithmetic behind the regulator's concern that the cap rules out asset classes where such fees are common. The FCA also says providers must keep strong controls when they agree performance fees, so that the fees serve savers and not only the manager.

What this does and does not change today

Nothing changes yet. The paper is a consultation, the cap remains in force, and the final rules and any start date have not been set. The exemption would apply to certain performance fees, not to every fee a manager charges, and we have not seen the paper's detailed definition of which performance-linked structures qualify. Read the definition in the paper itself before assuming that your carried interest or any other performance-linked arrangement falls inside it. The ordinary management fee is a different question and, as we read the announcement, is not what the exemption addresses.

How this fits with other recent UK rule changes

This is one of several UK items now open at once. On 5 November the Department for Work and Pensions opened a consultation on guidance for trustees' fiduciary duties, closing on 27 January 2027, which we covered in our compliance note on that consultation. The FCA's separate work on UK fund regimes includes the AIFM overhaul, which closed for comment on 22 October, and a proposal for 90-day notice on retail funds holding illiquid assets, with comments due 11 December. Each has its own deadline, so keep a single calendar for them.

What fund managers should check

This section is our suggested checklist, not a statement from the FCA. First, decide by early December whether to respond, because the window is 63 days and internal sign-off takes time. Second, map which of your funds' performance-linked fees might come within the exemption once the definition is final, and ask counsel how your documents describe them. Third, review whether you could give a provider and its governance committee the valuation information the safeguards point to: how private assets are valued, how often, and who reviews it. Fourth, consider how fees are allocated between investors in different vehicles, since fair allocation between savers is one of the proposed safeguards. Fifth, do not change your fee terms in advance of final rules; there is no start date and the text may change.

Why UK pensions matter to a fund raise

The exemption is aimed at the part of the market where savers have no direct choice, so providers act for them. That is why the consultation matters to managers pitching UK workplace schemes, and why the regulator wants providers to weigh returns, risks and costs. We have already covered Scottish Widows beginning to invest workplace pension savings in UK venture growth, which shows that programmes of this kind are already starting. To see which UK pensions are active, FundLinx members can browse UK allocators or book a demo.

This is not legal advice.

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