Pensions, like most other services or products, come with fees or charges. You may be paying very reasonable charges for your pension, but you could also be paying ridiculously high charges. If the latter is the case, you may find that your pension pot is being eaten into.
If you are paying higher fees, you might expect that you receive a better service and that your pension will perform better. However, this is not necessarily the case. In fact, it is often the opposite which is true, and you could be paying higher charges for a worse level of service. Therefore, it is critical for you to regularly check yourpension to ensure you are getting value for money.
Types of Pension Charges
There are various types of pension charges that you may be paying, including the following:
● Provider Charges. These charges are often referred to as management charges, and they cover the costs of the system your pension operates on.
● Fund Charges. Also known as Platform Charges. You will pay these charges to cover the cost of trading fees, systems, and technology that enable trading in stocks and shares.
● Ongoing Management Charges. If you are using a specialist financial advisor to manage your pension, you will have to pay ongoing management charges. Paying these charges does have a considerable potential upside. An ILC report from 2019 demonstrated that taking professional financial advice leads to accumulating more than £30,000 in your pension pot.
How Charges Can Affect Your Pension
Your pension is a long-term investment, so even minor differences in charges can have a significant effect on your pension pot over its lifetime. You must understand the level of charges you’re paying for your pension scheme. Having such an understanding will allow you to take action to correct any inefficient charges.
If you are unaware of the level of charges you are paying, the charges could be eating into your retirement funds. You should contact your pension provider as soon as possible to get an understanding of your pension charges. Alternatively, get assistance in this matter from a regulated financial adviser.
Why Are There Different Levels of Pension Charges?
It may be disappointing, but paying higher pension charges doesn’t necessarily mean that you’ll receive a better service. Higher charges are often a result of older technology and a failure to update systems.
Older systems can involve less automated, slower processes, resulting in a more expensive service. Moreover, your pension provider may not have updated your pension plan product for many years. If you are paying unreasonably high charges, your provider might not even be aware of it. Or, they may be aware, but they hope that you don’t notice. A modern pension scheme will utilise recent technology to make it more efficient and less expensive. Review your pension plans regularly to ensure you’re not paying too much.
Reducing Your Pension Charges
Try talking with a regulated financial adviser to ensure your pension charges remain reasonable. You find plenty of companies offering a pension-combining service that reduces your overall charges.
However, they don’t check your current pensions beforehand. Therefore, you can’t be sure if your pension charges are reduced because they haven’t checked your original charges. So, you might not end up any better off after your pensions have been combined. In fact, you could be worse off.
Going through a regulated financial adviser, you will get a check of your current pension plans, including the charges you’re paying on each. Your advisor will then compare your current plans with what’s available on the market to find you the best scheme.
Think You’re Paying No Pension Charges?
Several years ago, ‘with profits’ pensions were all the rage. One of the big selling points about these pensions was that they came with no charges.
Of course, if you think this sounds too good to be true, you’d be right. Yes, the plans may state that there are no charges, but it’s merely a case of the charges not being transparent. You will certainly be paying some fee for this type of pension. If you have a with profits pension, you should get it checked out by a regulated financial advisor.
When thinking about your pension, speak to a regulated financial adviser such as Portafina or, view the information at The Money Advice Service.
Leave a Reply