CP26/40: Exempting performance fees from the workplace pensions charge cap

The stated aim is to remove a structural barrier that has discouraged defined contribution schemes from allocating to performance-fee-based strategies — notably illiquid and private-market assets — without exposing members to uncapped costs. For compliance and product teams the proposal bites on two fronts. First, scheme operators and their advisers will need to revisit charge-cap monitoring frameworks, fee-disclosure and value-for-money assessments, ensuring any exempted performance fee is precisely defined, transparently calculated and properly reported to members and governance bodies such as trustees and IGCs.

Second, asset managers designing default-suitable strategies will need to evidence that performance fees are genuinely aligned with member outcomes rather than simply shifting cost onto savers. Action points: (1) assess exposure of existing default arrangements to performance-fee structures; (2) review policies, systems and member communications supporting charge-cap reporting; (3) engage with the consultation before the 14 January 2027 deadline, particularly on the definition of 'exempt' fees and the proposed safeguards; (4) coordinate with trustees, IGCs and third-party administrators on disclosure and governance. Balanced view: the FCA frames this as supporting innovation and access to higher-return assets, but scrutiny of value for money and transparency will be intense.

Firms that move early on governance and disclosure design will be best placed to capture the opportunity while managing conduct and reputational risk.