As with most other products or services, pensions come with a set of charges. These fees can vary from incredibly low to shockingly high.

However, you should not expect to receive a better service simply because you are paying a higher rate. Indeed, the very opposite will often be the case, meaning you are paying a considerable fee for very little in return. Therefore, you must regularly check your pension to ensure the charges are not consuming your pension profits.


Types of Pension Charges

If you have a pension, you will likely be paying some or all of the following charges:

• Pension Provider Charges. These are frequently referred to as management charges, and they pay the costs of the system on which your pension resides.
• Platform Charges. Generally low, these charges account for the technology which enables trading and the fees involved in trading.
• Ongoing Management Charges. If you are using a pension specialist or financial adviser to manage your pension fund, you will pay ongoing management charges. Although you may believe you can do this task yourself, an ILC report disclosed that people who receive financial advice typically had £30k more in their pension pots.


The Effects of Pension Charges

Pension charges may appear small, but they can significantly affect the size of your pot over the years. Therefore, you must understand which charges you are paying and how much they cost.

Failure to understand your pension charges means that they could erode your funds without your knowledge and without you being able to do anything about it. You should contact your pension provider immediately to find out what charges you’re paying. Alternatively, contact a financial adviser to assist you with this matter.

Variations In Pension Charges

As we mentioned previously, pension charges can vary significantly between schemes and providers. Frustratingly, paying higher fees doesn’t guarantee you a better service, and there are some rational explanations for this.

It is often the case that higher charges get levied due to your pension being on an outdated system. Although digital technology has been around for some time, many older pension funds are still managed on paper-based systems.

The additional time and effort required to administer these systems are reflected in the pension charges you pay. Hence, you are paying more for a lesser, older service.

Also, some pension products haven’t been updated in many years. This situation may be because the provider has forgotten to do an update. However, it might also happen because the provider is hoping you won’t notice, so keep their charges inflated.

Modern pensions benefit from the latest technology, which makes administering the scheme more straightforward and quicker. Therefore, you will likely get a better service for a lower fee. More importantly, they are likely to perform better, maximising your chances of achieving good pension growth.

Reducing Your Pension Charges

An excellent way to ensure you are not overpaying in pension charges is to speak with a regulated financial adviser. Companies are offering a pension-combining service, but you can’t be sure that these will reduce your overall fees.

Such companies merely take all of your existing pensions and put them together into a single fund. Although this may reduce the amount of administration involved for you, it doesn’t necessarily mean you’ll be paying less. The reason is they are unlikely to check your current pensions, so they won’tknow what you are currently paying in charges.

On the other hand, with a regulated financial adviser, you will have your current pensions checked, including provider charges. You can then assess your schemes compared to other products available on the market before deciding what to do.

Paying No Pension Charges?

With-profits schemes were popular pension options several years ago. One of the perceived benefits of these schemes was that they came without charges. However, this is not the case.

Although charges may not be obvious, you will be paying them somewhere within the scheme. Therefore, it will benefit you to check your pension and find out what you’re paying. A regulated financial adviser can help you with this matter.

If you are thinking about your pension, consider using a regulated pensions specialist such as Portafina or, view the advice at Money Helper.