Pension charges - top tips

Ollie Bryden | 29/11/2019



Most people contribute to their pensions every year. However, with the average person working 11 jobs in a lifetime, keeping track of multiple pension pots can get quite confusing. Unhelpfully, pension providers often charge in different ways, which can make it hard to know exactly what you’re paying and where your money is going. Here, we help you find out what you pay for your pension, as well as what you should consider as an expensive pension versus a cheap pension.

Do I always pay pension charges?

If you have a defined contribution pension, there’s no way to avoid charges. This is despite only 16% of Brits being aware they pay fees to their provider.*

One of the scenarios where you may not have to pay charges, is if you’re lucky enough to have a defined benefit pension. In most cases the employer will pay for the charges for these pensions.

What are my pension charges made up of?

Unfortunately, pension providers don’t always charge people in the same way. There is no set or fixed charging structure, which is why it’s very difficult for the average consumer to understand what they’re paying. With modern pensions, your typical total annual provider charge is commonly made up of:

Fund charge + platform charge = annual provider charge

The exact charging structure frequently varies between providers. However, generally these two charges are what you should look out for. Charges usually come in the form of a percentage fee (more rarely a fixed fee) and are taken out of your pension fund every year.

If you’ve taken ongoing advice, you should notice an ‘advice fee’ which you would need to add on to your total annual provider charge to get a total amount.

Total provider charge + advice charge = total annual pension charge

Are there other provider fees and charges I should be aware of?

Other charges to look out for or be aware of:

  • Service or policy fee - This covers the administration costs related to your pension

  • Exit fee - Some pension providers will charge a fee to withdraw or transfer money to another plan. Fees are now capped at 1% for people over 55

  • Transaction fee or 'dealing charge' - This is usually a set fee per transaction and relates to buying and selling investments

  • Inactivity fee - This is charged if you stop paying into your pension

None of these charges apply to our customers, however we do regularly see these in the pensions we review and add all charges up so we can do a full cost comparison of pensions.

Are there other adviser fee I should be aware of?

If you take advice there will usually be an initial advice fee (also known as transfer fee or set up fee) which will usually be a percentage fee, but will sometimes also be found as a fixed monetary amount or even an hourly rate. It's important to note, that the initial advice fee in most cases means a one-off fee, however some advisers will charge this fee for every 'advised event', which could mean a further fee being applied to your contributions. It’s common for advisers to also only accept a minimum pot size or minimum advice fee in order for them to give advice.

There's also an ongoing advice fee, which in many cases is an optional service where you should receive regular advice, ongoing monitoring and regular reviews of your pension and it's suitability. You can read more on the cost of pension advice in our blog How much does pension advice cost?

How do I check what I'm paying in pension charges?

Knowing where to go to find out what you pay for your pension isn’t easy. Nearly half of Brits don’t know where to go to find out their pension charges.* Charges can often be buried in the small print and aren’t consistently found in the same places. There are some places you can commonly find details of your charges which are listed below.

  • Log into your online pension portal – Charges can typically be found in a ‘Key features document’

  • Check your pension documents – If your pension provider includes annual pension statements, charges could be found in there, or in the new over 50 ‘wake up’ packs that providers started sending in November 2019

  • Look at your pension provider’s website – it might not always be clear, but pension fees and personal pension plans can sometimes be found on your provider’s website

  • Get in touch with your provider – If you wish to avoid reading through multiple documents and adding up the different charges yourself, get in touch with your provider directly for an overview of your pension charges

  • Speak to an adviser - You can find out the full picture of what you’re being charged on all of your pensions by contacting an adviser and giving some basic details. Make sure you understand the costs associated with this and whether there is an up front cost for this service

How much is too much?
  • Expensive pension - Over 1% annual provider charge

  • Okay pension - 0.5% - 1% annual provider charge

  • Cheap pension - Below 0.5% annual provider charge

Anything over 1.5% is very expensive and will be significantly eating into your pension pot.

*All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2096 adults. Fieldwork was undertaken between 15th - 16th October 2019. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

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