The Financial Conduct Authority wants workplace pension providers to be able to pay private-market performance fees without breaching the 0.75% charge cap. Its consultation, CP26/40, published on November 12, 2026, would exempt certain performance-linked fees from the cap on default funds in contract-based workplace pensions, provided the provider can get the fee and valuation information the rules would require.
That condition is where the work sits for finance and operations teams. The exemption is optional, and a provider can only use it for an investment where the manager has agreed in advance to explain how the fee is calculated and to share the numbers on request.
What the FCA is proposing
The charge cap dates from 2015. It limits charges in workplace default pension funds to 0.75% of funds under management, and the FCA replicates it through its own rules for contract-based schemes. Trust-based schemes, regulated by The Pensions Regulator, have had an exemption for certain performance fees since 2023, when the Department for Work and Pensions changed the rules for them. The FCA’s announcement says the proposals would bring its rules more closely into line with that trust-based regime.
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The paper names the asset classes it has in mind. Performance-linked fees are common in private equity, venture capital and private credit, and the FCA says the current cap “limits pension schemes from considering asset classes where performance fees are more common.” Strong performance can itself push a fund over the cap, because a good year produces a larger performance fee.
Therese Chambers, executive director of enforcement and market integrity at the FCA, set the terms: “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.”
Responses are due by January 14, 2027, and the regulator expects to make final rules in summer 2027.
Who the change is built for
The cost benefit analysis in CP26/40 ties the proposal to the Mansion House Accord, signed in May 2025. Its signatories agreed to voluntarily allocate 10% of their main defined contribution default funds to private markets by 2030, with at least 5% of the total in UK private markets.
Of the 17 signatories, 8 operate contract-based schemes and are subject to the FCA cap. The paper says the Accord’s signatories described alignment of the cap between the two scheme types as a “critical enabler” of their private-asset commitment. The FCA estimates that £206bn of assets sit in default funds in accumulation at firms with contract-based workplace schemes, around a third of the contract-based market.
Its central estimate is £14.3bn of benefits against £5.5bn of costs over ten years in present value terms, a net present value of £8.8bn. The modelled gain comes from a 2.1% increase in median net returns to savers over the 10-year appraisal period. The FCA calls that a relatively small increase applied across a large asset base.
Fees today are well below the ceiling. The paper cites the DWP’s Pension Provider Survey 2024-2025, which found median annual management charges of 0.32% for multi-employer providers and 0.24% for single-employer trusts. The FCA says schemes report keeping charges low partly by limiting private-asset holdings.
The conditions are a data requirement
A fee would qualify for the exemption only if it meets two tests. It must be calculated solely by reference to increases in investment performance, which the FCA says would cover carried interest even where it is not formally labelled a fee. And a minimum set of terms must be agreed between provider and manager when the investment is made, covering how the fee is calculated and when and how it is paid.
The FCA then adds a further condition. Performance fees would only be exempt where the fund manager has pre-agreed an information sharing obligation to disclose fee information on request. Guidance would say that adequate disclosure covers the methodology for allocating fees to the performance calculation, the breakdown of fee components and, where used, how high-water marks are calculated. In fund of funds structures the obligation reaches down to fees paid to sub-funds.
The regulator is open about why. Providers told it they do not always receive a detailed breakdown of performance fee components, and that high-water mark calculations are hard to obtain. The paper lists three possible causes: no common agreement on how data should be shared, schemes still building the expertise to ask for the right information, and managers with the strongest performance seeing no commercial reason to share. The FCA acknowledges that the obligation may put some investments out of scope of the exemption.
Valuation due diligence before the money moves
Performance fees depend on valuations, and private assets have no public price. The FCA proposes a valuation governance due diligence framework: an operator must establish on reasonable grounds that appropriate valuation policies and procedures are in place at the manager, and if it cannot, it must not proceed with the investment.
The proposed guidance lists what operators should assess: governance and accountability for valuation, independence of the valuation function, conflicts such as continuation vehicles where a manager sits on both sides of a deal, consistency of methodology and models, the role of auditors, whether there is a process for ad hoc valuations to avoid stale prices, and oversight of third-party valuers. The FCA says this framework draws on its multi-firm review of private-market valuation and on IOSCO recommendations. An earlier opinion piece on this site argued that the private-market conflicts the FCA flagged are events a system can log.
Independent Governance Committees keep their role. The FCA proposes to name performance fee scrutiny explicitly in the IGC remit, and performance fees stay inside value for money assessments even when they sit outside the cap.
What it means for the finance leader
In our reading, the consultation turns a pricing question into an information supply chain. A provider that wants the exemption has to hold, per fund and per layer of a fund of funds, the signed fee terms, a disclosure right, the fee component breakdown, high-water mark workings and evidence of valuation due diligence. Each of those has to be retrievable for the IGC and for value for money reporting.
For pension providers and their administrators
Map which private-market funds in current or planned default allocations would meet the two qualifying tests today. Where the provider is a small investor in a fund and cannot negotiate terms, the FCA says it must confirm the required terms are in place before investing, or the fees stay inside the cap.
For private-market managers and fund administrators
Expect pension providers to ask for fee methodology, component breakdowns and high-water mark calculations as a condition of investment, along with documentation of valuation governance, independence and ad hoc valuation processes. Managers that can supply this in a consistent format will be easier for providers to include under the exemption.
For the systems vendors that serve both
Look-through fee reporting, valuation audit trails and performance fee calculation records become inputs to a regulatory exemption. The FCA asks respondents for specific examples of data that is hard to obtain, which gives vendors and providers a direct route to shape what the final rules require.
The FCA’s rulemaking on this runs alongside other UK oversight of how firms use technology in advice and markets, including its call for AI providers to add disclaimers to financial advice. Comments on CP26/40 close on January 14, 2027.
Source: Financial Conduct Authority
