Like pretty much every other product or service, your pension will come with a set of charges. These fees can range from tremendously low to ridiculously high, and the higher they are, the more your pension will suffer. High fees will eat into your pension’s profits, eroding its overall performance.
You might think that paying higher charges will get you a better service, but that’s not necessarily the case. It is often the opposite that holds, which means you’re paying more for a lesser service. Therefore, you must check your pension regularly to ensure you’re getting value for money.
Types of Pension Charges
There are several types of pension charges you may need to pay, including the following:
- Provider Charges. These are also referred to as management fees, and they cover your pension system running costs.
- Platform or Fund Charges. These charges are typically low. They’re levied to cover the cost of trading and the technology that enables trading.
- Ongoing Management Charges. You will pay these charges for specialist knowledge you receive on your pension, such as that given by a financial advisor. An ILC-UK report from 2019 estimated that people who received professional financial advice were, on average, £30,000 better off with their pension funds.
Effects of Pension Charges
Your pension can be significantly affected even by what you pay in provider charges. Even minor variations can impact the size of your pot over the long term. Therefore, it is critical to understand precisely what charges you are paying, what you’re getting for them, and the impact they’ll have on your pension pot. To help you fully under your pension charges, you can get in touch with your pension provider or consult with an independent regulated financial adviser.
How Some Providers Offer Cheaper Fees
As we mentioned earlier, paying higher charges does not necessarily mean you’ll get a better service. This situation may seem annoying, but there is usually a straightforward reason for it. Older pensions generally have higher charges than more modern ones due to being hosted on old-fashioned systems or a lack of development.
Despite computer technology and digital administration being around for decades, many older pensions are still managed using paper-based systems. Of course, these older processes are slower and more expensive to administer. Therefore, you end up paying more for a lesser service.
You may also find that these products have not been updated or reviewed for many years. Your pension provider might have forgotten to update your pension to a new system, or they may hope you don’t notice the amount you are paying in over-inflated charges.
With modern pensions, you’ll be guaranteed to be on a new system utilising digital technology. With modern pensions, you’ll generally have lower fees and better service.
Reduce Your Pension Charges
To ensure you are not overpaying in pension charges, you should consult with an independent financial advisor, or you might consider combining multiple high-charging pensions into a single scheme to save costs. There are plenty of companies that will combine your pensions for you. However, these companies don’t generally check what you are currently paying, so you can’t be sure they’ll reduce your overall costs.
Using a regulated financial adviser to analyse your current pension schemes, you will find out how much you are paying and get a comparison with similar products currently available. You can discuss your best options before deciding to switch your pensions or stick with those you already have.
Think You’re Paying No Pension Charges?
If you believe you’re paying no pension charges, you are likely to be disappointed. Some years ago, popular pensions were ‘with profits’ schemes. One of the key selling points of those schemes was that they had no associated charges. However, these pensions didn’t come free of charge; it is just that the fees were not exactly transparent.
You can be sure that you’ll be paying some charges somewhere along the line whatever type of pension you have. That’s why it is crucial to understand what charges you’re paying and how they affect your retirement.