Some consumers can pay as much as two-thirds of their fees during their lifetime – how can you be sure you’re not paying extra charges?
You already pay an annual management fee to your pension provider, but there are various other extra fees you might be paying without even knowing it.
Your annual management fee is usually set as a fixed amount, or as a percentage of the value of your pension fund. This charge covers the costs of administering the fund and investing your contributions. However, this may not be the only fee you are expected to pay by your pension provider. Additional charges are often hidden from the consumer, either through fine print or jargon, and can have a significant impact on your pension funds.
Here are just some of the outrageous pension fees you could be paying:
Service or Policy Charge
If you already pay an annual fee for the management of your pension, you may think you don’t owe your pension provider further. However, some pension providers include additional costs for the pension management fees of your fund, in the form of a policy or service fee, to cover administration costs1.
When it comes to extra fees, even topping up your pension could trigger a charge.
Did You Know?
Some pension providers have structured their fees to benefit when you put funds into your pension by taking a percentage of your contribution. This fee is usually in addition to your annual management fee.
Inactivity pension Charges
This fee could apply if you are no longer paying into your pension scheme if, for example, you’ve changed jobs.
What Does This Mean for You?
The charge, while often packaged as a benefit or ‘active member discount’, is actually a penalty applied to those who are no longer contributing.
All these potential fees may make you look at alternative pension providers – but be warned, moving your pension may also trigger a charge. There are costs associated with moving your funds, and most schemes will charge for this. However, some providers will charge much higher fees should you want to move to another pension provider.
In Other Words
Should you want to move your pension from one provider to another, you may be expected to hand over money in a payment or lose some of your pension value to a fee.
This charge is included by some schemes, for using their services. Most investors move and hold funds using websites (or platforms) with various capabilities. Depending on your pension scheme, the fees for using these sites could be passed to you in additional charges.
A Few Common Questions
Over time, charges2 can impact on the value of your pension fund. As most charges are a percentage of the value of your pension, reducing this percentage could stop you from losing a significant amount of your fund over the years. High fees can reduce the among of money you have left to retire on.
Different pension schemes have different levels of charges. The annual average pension charges are around 1%, but some plans offer much lower rates. Ask your pension provider to provide a full breakdown of the costs that apply to your scheme.
Annual management charges cover the day-to-day running of the pension scheme, including some administrative costs. While each pension provider’s contract may differ, this fee is usually a percentage of the pension’s value.
Once you’ve turned 55, you can withdraw 25% of your pension fund without paying tax. To remove your funds earlier than 55, you will need to meet specific criteria. Examples of these criteria are a medical condition that stops you from working, or if a doctor has said you have less than a year to live.
Additional fees can have a considerable impact on the size of your pension fund over time. Often, these charges are set at a percentage of your pension’s value, and they increase as your pension does. It’s vital to unpack what fees you are paying on your pension fund to ensure you take home the most benefits when you retire.