The Edinburgh-based firm said the payment of performance fees by workplace pension investors was not justified.

The performance fee model means managers are paid a bonus, in addition to a fixed annual management fee, for outperforming a benchmark or “hurdle rate”.

In a submission to the UK Government seen by the Financial Times, the firm said that it sees “no evidence to suggest that performance fees improve customer outcomes.”

Scottish Widows wrote: “We do not see a need for performance fees to be permitted in default (pension) funds.”

Scottish Widows was responding to Department for Work and Pensions proposals to loosen a cap on 0.75% annual management charges for workplace pension savers. 

The UK Government has proposed the changes because it wants defined contribution (DC) pension schemes, with billions of pounds in cash, to invest more readily in sectors where performance fees are levied, such as private equity and venture capital. 

Under current regulations, DC schemes can be deterred from investing in these sectors as the performance fees can put the trustee at risk of breaching the charge cap.

The new government proposals would allow performance fees to be smoothed over a five year basis, lowering the risk of such a breach in any one year. Defined benefit schemes are not covered by the cap.

In its consultation response, Scottish Widows suggested asset managers change their fee models, rather than the cap be modified.

The firm said: “Asset managers are capable of operating a ‘dual structure’, which allows them to operate a version of a fund which includes performance fees, and a separate version of that fund which does not include performance fees that could be made available to DC schemes.”

The asset management sector has been subjected to mounting pressure to set aside the performance fee model.