The financial watchdog’s proposals to relax pension charge cap rules could help boost investment in start-ups and private companies, bosses have said, after efforts to unleash a wave of investment from Britain’s retirement funds have stalled in recent years.

The Financial Conduct Authority (FCA) yesterday floated excluding certain performance-linked fees from the charge cap for default funds in workplace pensions in its latest consultation paper.

Critics have argued that a 0.75 per cent fee cap has restricted pension providers from investing in private markets assets including private equity and venture capital, which historically have struggled to fit their fees below the regulatory ceiling.

The watchdog argued the reforms provide “greater flexibility”, allowing access to investments which can “improve long-term returns for value”, while industry figures said it could lead to more capital entering these riskier assets.

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

“Private market investments can offer valuable diversification and access to growth opportunities, while potentially unlocking more pension capital for investment into UK businesses.”

Not an excuse

But the regulator warned the changes would not be a “licence to charge more”, telling providers that higher charges must be justified by the additional value delivered to savers.

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

Alongside the proposal to overhaul the cap, the FCA suggested safeguards covering transparency, fair allocation of fees and greater scrutiny of private asset valuation.

The consultation comes as the government shifts its focus to improving long-term retirement outcomes, underpinned by the incoming Value for Money framework.

The regime will see workplace schemes assessed on net investment returns and quality of service instead of solely on headline fees.

It could also enable Mansion House signatories to boost their allocations to risker private assets. As of December 2025, the 17 signatories had allocated 3.3 per cent of assets to UK private markets, but the vast majority has been pushed into property.

 Just £500m was invested into private equity.

Gareth Trainor, director of investment propositions at Royal London, which is a Mansion House signatory, said: “Supporting greater investment in private markets could create greater opportunities for pension savers, while also unlocking potentially more investment in the UK economy.” 

Greater alignment

The changes would also align FCA-regulated pension schemes with trust-based schemes, which have been excluded from performance fee restrictions since 2023.

James Wilson, long-term savings policy director at the Association of British Insurers, said ending the differences 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,” he said.

The consultation closes on 14 January 2027.