The Financial Conduct Authority (FCA) is reviewing the rules around contract-based pensions to allow performance fees to be included outside of the 0.75 per cent charge cap.
Some media outlets have reported a review that would examine increasing the 0.75 per cent charge cap, based on comments made by FCA chair Nikhil Rathi in his letter to the prime minister last week setting out the organisation’s approach to growth, in which he wrote: “Next year we will consult on the pension charge cap so consumers are not disincentivised from investments due to higher performance fees”.
Some media coverage has suggested this could lead to an increase in the 0.75 per cent charge cap. However, the FCA is consulting on aligning its rules with those of the Department for Work and Pensions (DWP), which currently allow occupational schemes regulated by The Pensions Regulator to use asset managers that charge performance fees, without these performance fees counting towards the 0.75 per cent charge cap.
The DWP relaxation of the charge cap is seen as integral to facilitating the objectives of the Mansion House Accord, which promotes a 10 per cent allocation towards more expensive private market assets. By allowing performance fees to sit outside of the charge cap, the introduction of performance fees is considerably more financially viable for providers.
Currently contract based providers regulated by the FCA are restricted in their ability to introduce private markets by the difference in rules between the two regulators which regulate what two members and savers within schemes see as identical products.
The FCA consultation will consider any safeguards that are needed to protect consumers in situations where the exemption applies to returns that are yet to be realised.
The FCA and TPR launched a joint strategy in 2018 that pledge to align policy positions where possible. But it did not commit to harmonisation of rules across the two jurisdictions.
Other regulatory differentials between the FCA and TPR include the fact that targeted support is not extended to TPR-regulated schemes, whereas it is for FCA-regulated ones.