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Just like most other financial products and services, your pension will probably have charges associated with it. In many cases, these charges are relatively low and have little effect on your pension’s performance. However, if you are tied to paying high fees, these could eat into your profits and put your retirement at risk.
With this in mind, you must be aware of the pension charges you are paying and ensure you’re getting excellent value for money. Read on to discover more about pension charges, how they affect you, and what you can do to reduce them.
Types of Pension Charges
- Provider Charge. This fee is also referred to as a Management Charge. It is essentially the money you pay for the running costs of your pension investment.
- Platform or Fund Charge. This charge covers things like trading fees and the cost of the technology or trading systems that enable your investment.
- Ongoing Management Charge. These charges would include fees payable to a financial advisor to review or manage your pension. You might see these as an unnecessary expense. However, an ILC report from 2019 concluded that people who invested with a financial advisor’s help had, on average, £30,000 more in their pension pot than those who sought no advice.
Effects of Charges on Your Pension
You may consider the charges you pay in your pension to be insignificant. However, even paying a small percentage in costs can have a considerable accumulated effect. If you are unclear about what charges you are paying or the impact those charges are having on your pension pot, you should contact your pension provider and find out. It may also be prudent to seek independent regulated financial advice regarding this aspect of your pension.
Differing Charges Between Providers
Just because you are paying higher fees doesn’t mean that your pension will perform any better. Indeed, very often, higher fees are charged because a provider uses antiquated systems that require more management.
Digital technology has made managing pensions more straightforward. However, some providers have yet to invest in upgrading their systems. So, not only might you be getting a worse service, but you are likely to be paying more for the pleasure.
Quite often, higher fees can come down to a case of apathy. Your provider may have upgraded their system but forgot to amend your costs accordingly. Conduct regular reviews of your pension to ensure you’re not caught up in high charges.
Reducing Your Pension Charges
The best way to review your pension and cut back on any high charges is through a regulated independent financial adviser. A regulated advisor can look at your pension and compare the charges you’re paying to those of similar schemes on the market. If there is a pension that better suits your situation, then you may be able to switch your investments into that.
There are some companies that can help you combine several pensions into one. However, you may not be sure how much the charges will be reduced, as many of these companies don’t check your current pension charges. So, you might not even be better off following the switch or you could be giving up valuable benefits.
Think You’ve Got a Pension With No Charges?
A popular pension available several years ago was the ‘with profits’ pension. One of the more appealing selling points of this type of pension was that it came with no charges. This situation might sound too good to be true, and that’s pretty much the case.
The charges associated with these pensions might not be clear, but you will be paying for the service. So, if you have one of these pensions, maybe it would be a good idea to find out how you’re paying for it. A regulated independent financial advisor is an excellent place to start.
Pension fees are inevitable, but they don’t have to be high. Hopefully, this article will motivate you to find out how much your pension charges are costing, so you can reduce them and maximise your savings for retirement.
When thinking about your pension, speak to a regulated financial adviser such as Portafina or, view the information at The Money Advice Service.
Disclosure: This is a collaborative post