Pension Expenses and Charges: What's the Cost of Your Retirement Funds?

Uninformed Pension Transfers Could Cost Retirees Dearly

A new study has revealed that a significant number of people who have recently transferred their pension are unaware of the fees associated with their old and new plans. According to the report, nearly three-quarters (72%) of individuals were in the dark about the charges.

One of the key concerns is the potential for hidden fees in older pension plans. Some of these plans may have policy/service fees separate from the annual management fee. It's essential to be aware of these charges when considering a transfer.

For those with defined benefit pensions worth more than £30,000, seeking financial advice before transferring is mandatory. The complexities of these pensions make it crucial to understand the implications of any changes.

To check the fees you're currently paying, most pension providers detail their charges on their website, and you can typically view this information when logged into your online pension account.

Investing in passive funds, which typically come with charges as low as 0.1%, can help slash these fees. However, it's important to note that in a defined contribution pension (money purchase pension), you'll pay fees to your provider. The annual management charge is often the biggest fee you'll pay on your pension pot.

For defined benefit or final salary schemes, fees are typically covered by employers. But if you have a personal pension or Self-Invested Personal Pension (SIPP) managed through an online investment website, you'll pay a platform charge. Most platform charges are a percentage, but some providers charge a fixed fee.

If you move your pension to a different provider, you might pay an exit fee, particularly with older pension plans. The Financial Conduct Authority (FCA) has capped exit fees at 1% for savers over 55 and banned them on new plans since 2017, but older plans may still include these fees.

Pension fees vary widely depending on the provider and type of plan. As of the latest data, pension providers like AJ Bell Youinvest and Interactive Investor offer some of the lowest annual management fees for Self-Invested Personal Pensions (SIPPs), often below 0.25% per year.

If you think you're paying too much, you could consider moving to a pension with lower charges, but check for any exit or transfer fees and ensure you won't lose out on valuable benefits.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, suggests reviewing older schemes to ensure the charges are competitive. Actively managed funds usually come with higher fees, often above 1%.

It's also worth noting that if you're unsure about transferring or consolidating your pensions, professional financial advice can help. Older pensions sometimes still carry exit penalties or offer benefits such as enhanced tax-free cash beyond the normal 25%, or guaranteed annuity rates, so it's important to always check before moving.

Lastly, if you stop contributing to your pension for a prolonged period, some older providers might charge an inactivity fee. So, it's crucial to keep your pension active and regularly review the fees you're paying to ensure they remain competitive.