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High charges could be eroding your pension funds. Here’s how to avoid them

You may not be aware, but you pay charges for your pension fund. How much you pay will vary, and charges can range significantly between pension providers.

Just because you are paying more in pension charges doesn’t necessarily mean you’ll get better service. Often, the opposite is the case, which means you are losing out on both fronts, including your funds.

Therefore, you should understand what level of pension charges you are paying and regularly check that these have not risen too sharply. Doing this will enable you to get the best value for money from your pension plan. If your financial future is important to you, it is highly recommended you engage with a financial advisor (such as Portafina) before making any decisions.

Types of charges

There are several types of pension charges you could be paying. These include the following:

  • Pension provider fees. These are often referred to as management charges. They pay the costs of the pension system your fund resides on.
  • Platform charges. Also referred to as fund charges, these are low-level fees that apply to trading – the technology and systems that enable trades to take place.
  • Management charges. There will likely be associated management charges if you get regular professional advice regarding your pension, such as from a financial advisor. However, it would be best if you were not too concerned about these. An ILC report issued in 2019 highlights that those who use a financial advisor are likely to accumulate an additional £30,000 into the pension pots.

The effects of pension charges

You might think that the charges you pay are insignificant. However, even a slight percentage difference can significantly affect the size of your funds over the pension’s lifetime.

Therefore, you must understand what level of charges are applied to your pensions and how these fees will affect your retirement funds. Failing to know what you are paying in fees means they could be eroding your retirement funds without you knowing.

If you do not feel comfortable doing this yourself, you can get some help. A regulated financial advisor can assist you with this aspect of your pension.

Why do charges vary between pension providers?

The main reason why charges vary between pension providers is the particular system being used. Some providers are still using old-fashioned systems, and this presents two problems.

Firstly, older systems tend to be paper-based and require much more administration and management, making them more expensive. Secondly, they tend to perform less well than modern schemes that utilise technology. The result is you are paying higher fees for a lower quality of service.

Your provider may not have reviewed or updated the system your pension runs on for many years. They may have forgotten to do this or maybe hoping that you do not check on the high charges you are paying. Therefore, check your pension fees regularly.

Reducing your pension charges

Some companies will offer you the chance to reduce pension charges by combining your plans into a single scheme. However, they will not provide any advice, and the main objective is to combine your pensions rather than reduce charges. As they do not check your pensions performance or level fees, it is hit-or-miss whether you can achieve a lower level of charges.

Using a regulated financial advisor is an excellent way to reduce your pension charges. They will thoroughly check out your pension scheme, including what you are paying in charges, and assess whether you are getting value for money. They can then compare your pension scheme with other products available in the market. Therefore, you will have all the information you need before making a significant decision regarding your pension funds.

Do you think you’re not paying any pension charges? Think again

We often get people who tell us that they are not paying any pension charges. This is not the case; they simply do not understand what they are paying, or the fees are embedded in some other aspect of their pension.

An excellent example of this is with-profit pension schemes. These were popular several years ago and were sold as having no charges applied.

However, there were fees with these pensions, but they were just not transparent. You can be sure that regardless of your pension scheme, you will be paying some level of pension charges. Therefore you need to understand that these are to avoid them eroding your retirement funds.