The FCA is considering lifting the charge cap on some workplace pension funds to provide greater investment flexibility for providers.
The regulator says it will consult on, "excluding certain performance-linked fees" from the charge cap for default funds in the workplace pensions it regulates.
The move, if approved, could give workplace pension providers greater flexibility to invest, helping them deliver better outcomes for savers, according to the watchdog.
The FCA says that the proposed change would give providers greater flexibility to access a broader range of investments which could improve long-term returns and value for savers.
The FCA stressed, however, that the move would not be a "licence to charge more."
It says: "Providers should carefully weigh potential returns, risks and costs when making investment decisions, and any higher charges should be justified by the additional value delivered to savers."
Alongside the extra flexibility on charging, the FCA is proposing safeguards covering 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 necessary to assess whether performance-linked fees offer value for money.
Therese Chambers, executive director of enforcement and market integrity at the FCA, said: "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."
The proposals would bring FCA rules more closely into line with the regime for trust-based pension schemes, where certain performance-linked fees have been excluded from the charge cap since 2023.
The proposals would give providers an option, not an obligation, to use the exemption. The FCA is seeking responses by 14 January and expects to make final rules in summer 2027 following feedback.
Reaction from providers was mainly positive with some caveats.
Gareth Trainor, director of investment propositions, Royal London said: "The charge cap plays an important role in protecting workplace pension savers from excessive costs, but it shouldn't stand in the way of investments that could deliver better long-term outcomes for them."
"We welcome the FCA looking again at how the rules work in practice. Getting the balance right between keeping costs under control and supporting greater investment in private markets could create greater opportunities for pension savers, while also unlocking potentially more investment in the UK economy."
Lorna Blyth, managing director, investment proposition at Aegon, said: “These proposals are a welcome step towards greater consistency between contract-based and trust-based pensions, while removing a significant operational barrier to investing default funds in private markets.
"More broadly, they support the continued shift from focusing predominantly on keeping costs low towards delivering genuine value for money, backed by strong governance and Consumer Duty protections.”
• The consultation is opens until Thursday 14 January 2027.