What Are Pension Charges

What's a pension fund?

This might be one of the most straightforward questions yet slightly complex to answer than you might think.

Have you been looking forward to the sunset years where you’re free from work and the pressure of bosses? Well, with Monday just around the corner you might be one of the lucky ones to have an extra hour or two to enjoy the tranquillity in your backyard or a few extra hours fantasising in bed – with nothing to stress about.

Retirement might seem like a mirage and pretty far away for most employees. For others, though, it’s a constant nightmare about financial constraints and health issues. Some even worry about the expenses that come with opening up a pension pot1. That’s why you should ensure that you consult about pensions, pension charges and everything that’s involved with retirement planning.

However, even before you start searching for a reliable pension advisor or pension providers, you need to know some basic facts and here’s a comprehensive guide on pension plans and pension charges.

Understanding Pension Charges

Pension schemes are your savings for a fantastic retirement. They feature various options like the state pensions2, workplace pensions, personal pensions, defined contribution pensions, among others. Like with any other financial product, these retirement plans come with various charges.

These charges vary, and they depend on your plan provider since various pension companies take diverse approaches when it comes to pension fees. When it comes to annual fees, for example, most lenders can vary widely, and some charge you a single annual management fee and others that charge it on a fixed-term3 basis.

Most pension users have no dies about what they’re getting into or what they’re paying. That’s why it’s essential to understand the various types of pension charges UK that your provider might impose and here are some of the most popular pension types include:

Annual Management Fee

The annual management fee or annual management charges4 (AMCs) cater for your pension management expenses like the costs associated with administration. It’s common for some pension companies to hide fees in small print and footnotes so the headline annual management costs for your pension scheme might not entirely represent the ultimate amount your provider charges you. Therefore, make sure that you press your lender to offer you the finer details of the AMCs.

Underlying Fund Fee

It’s a famous pension charge that caters for managerial charges. It pays the fund managers. It’s a fee that most plan providers hide in small print, but it does come on top of the annual management charges.

Service or Policy Fee

It’s another fee that’s hidden. In addition to the AMCs, some lenders will stick this fee on your pension pot to cater to the ‘administration expenses.’

Inactivity Fee

Some pension firms will charge you an inactivity fee which essentially means that when you decide to stop paying into your pension plan, you’ll pay some penalties. The pension charge is also referred to as the ‘active member discount’. In an attempt to offer a positive spin on the costs. Therefore, you must keep an eye out for these, especially when you move jobs a lot and own several dormant pension funds.

Contribution Charge

The contribution charges are a percentage that providers take out every time you pay into your pension scheme. Some lenders will impose a commission of 2% each time you deposit money into your fund so the costs of your monthly contributions can stack up. Fortunately for you though, these costs are less common today than a few years back so when choosing a pension plan, be sure to ask your provider if they include this fee in their schemes.

Exit Fee

It’s a pension fee that caters to withdrawing or transferring your pension pot. Exit fees do vary more widely than even the AMCs. According to several reports, more than 700,000 pension plan users have faced exit fees of up to 10% – a situation that has led the Financial Conduct Authority (FCA)5 to impose a cap of 1% for pension savers over the age of 55, and an exit fee ban on any new pension schemes.

So, before you take out a plan, make sure that you consult your financial advisor and figure out if the pension provider you want charges an exit fee of more than £10, or if pension plan comes with unique benefits or guarantees (such as a guaranteed annuity rate).

Most pension provider today, with the financial crisis paralysing businesses, many pension companies are making transfers tricky with high exit fees and cumbersome processes. So it would help if you were careful when selecting your pension provider.

Platform Fee

In some states, some pension companies will add another charge in the form of a ‘platform fee.’ It’s another cost they’ll impose just for the privilege of using their services.

Common Questions

What’s A Pension Scheme Charge?
How Do You Pay into Your Pension Scheme?
How Do Pension Management Charges Work?
What Are the Typical Pension Charges?

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