The Financial Conduct Authority has proposed excluding certain performance-linked fees from the 0.75 per cent charge cap on workplace pension default funds, a reform that industry bosses say could channel more retirement money into British start-ups and private companies.

The regulator floated the change in a consultation paper published yesterday. Critics have long argued that the 0.75 per cent fee cap restricts pension providers from investing in private markets assets, including private equity and venture capital, because those asset classes have historically struggled to fit their fee structures below the regulatory ceiling.

The FCA said the reforms provide "greater flexibility", allowing schemes to access investments that can "improve long-term returns for value". Industry figures said the change could lead to more capital flowing into these riskier assets.

Kelly Parsons, head of DC proposition at Broadstone, said: "The FCA's proposals are a welcome recognition that the cheapest pension investments do not necessarily deliver the best outcomes for savers."

She added that private market investments can offer "valuable diversification and access to growth opportunities, while potentially unlocking more pension capital for investment into UK businesses".

What does the watchdog's warning mean for providers?

The regulator cautioned that the changes would not be a "licence to charge more". Providers must justify higher charges through the additional value delivered to savers.

"Bigger does not automatically mean better…robust governance, transparency and scrutiny of investment performance will be essential," Parsons said.

Alongside the cap overhaul, the FCA proposed safeguards covering:

• transparency;
• fair allocation of fees;
• greater scrutiny of private asset valuation.

The consultation lands as the government shifts focus toward improving long-term retirement outcomes, underpinned by the incoming Value for Money framework. That regime will assess workplace schemes on net investment returns and quality of service, rather than headline fees alone.

Why have Mansion House pledges stalled so far?

The reforms could enable Mansion House signatories to increase allocations to riskier private assets — an area where progress has been slow.

As of December 2025, the 17 signatories to the Mansion House compact had allocated just 3.3 per cent of assets to UK private markets. The vast majority of that money went into property. Only £500m was invested into private equity across the entire group.

Gareth Trainor, director of investment propositions at Royal London, one of the signatories, said: "Supporting greater investment in private markets could create greater opportunities for pension savers, while also unlocking potentially more investment in the UK economy."

Efforts to unleash a wave of investment from Britain's retirement funds into growth companies have stalled in recent years, making the charge cap question a central lever for policymakers trying to redirect pension capital toward domestic businesses.

How does this align the two pension regimes?

The changes would bring FCA-regulated pension schemes into line with trust-based schemes, which have been excluded from performance fee restrictions since 2023. That two-year gap between the regimes has created an uneven playing field across the workplace pensions market.

James Wilson, long-term savings policy director at the Association of British Insurers, said ending the difference between the two regimes would remove unnecessary complexity and create a "consistent pensions market".

"For ultimate success, we need consistency in the fine print too. Regulators must be able to adopt any new protections in lockstep, so all savers have access to the same wide range of investment opportunities," Wilson said.

The consultation closes on 14 January 2027.