High time: Fees, funds and how a little time looking at your pension costs could save you thousands

From energy tariffs to mortgages, people who stick with the same pension provider year-in, year-out are at the greatest risk of losing out. The leading rates or most competitive prices are often reserved for those who compare the market, so the only way to cut your bills—or increase returns—is to look for a better deal. The same principle applies to saving for retirement: too many people have old or forgotten pensions that impose excessive charges or are made up of underperforming or otherwise unsuitable investments and assets. But there’s more to the pension problem than meets the eye, but carrying out pension checks can help your retirement income.

The dormant pension trap

Some pension providers continue to charge high fees on out-dated pension contracts simply because they have been left lying dormant and ignored. You also may have forgotten about one of your old workplace pensions, which has likely continued to accrue money over the years. The increasing frequency with which people change jobs has led to a huge increase in the number of dormant pension pots – government figures suggest the figure could be as high as 50 million by 2050*.

If you are lucky, any dormant workplace pension scheme you hold should have continued to grow: but fees imposed by the provider may have limited its growth. If the fund was set up many years ago, when there was less pressure on companies to offer low-cost savings plans, you could be paying charges as high as 5% a year

The impact of high fees

Annual fees of 3% may not sound terrible, but they can have a significant impact on how much money you’ll have to retire on. Over 30 years or more of saving into a pension scheme, high-level charges of 3% could reduce the potential pension fund at retirement by tens of thousands of pounds. For example; based on a pension fund size of £35,000 and saving for 30 years, reducing your fund fees from 3% to 0.5%, you potentially save an extra £33,000 when you come to retire. It could also mean that your pot could run out at an earlier age or at least impact the amount of income you can withdraw when you retire^.

Calculate how much you could save when carrying out pension checks by using our pension fees calculator here.

Checking for growth

Similarly, it’s important to check that your fund is being invested wisely. Reviewing your pension isn’t just about checking the fees. For example, let’s give an example of someone saving £400 a month from the age of 40, paying 1% in fees and retiring at 65. The difference between 5% annual growth and 1% annual growth would mean an extra £200 per month in your pocket during retirement, as well as nearly £20,000 more in your cash lump sum when you reach 65.

Of course, everyone’s circumstances are different, so it’s important to seek independent professional advice and ensure that the assets your fund is invested in are appropriate. You should consider your appetite for risk and how far away you are from retirement, as well as your retirement goals.

How to take action

Tracking down an old workplace pension scheme and reducing high fees is not difficult or time-consuming – and in the long run could save thousands, as the above example suggests. The government offers a free service that helps savers find the contact details for their workplace or personal pension scheme. If you have several pension pots, you may consider consolidating them into a single pot. With all your savings in one place, it may make your retirement funds easier to manage. That also goes for keeping an eye on its performance.

Pension Works offers a no obligation, pension assessment and will only charge a fee if you decide to take our recommendation to move your personal pension to a more suitable option. To start a free Pension HealthCheck, click here.

We are a telephone-based pension advisory service based in Knutsford, Cheshire. We cover the whole of the UK, providing financial advice to people from all walks of life from the comfort of their home. Should you live locally, please feel free to visit our offices at Booths Park.


^ Figures based on a pension fund of £35,000 at 35 years and retiring at 65. Does not take account of any costs or fees that may be incurred when transferring from an existing pension plan to a new pension plan. Assumes a 2.5% annual fund growth rate, growth performance could vary significantly from this rate and between different pension plans. Only considers the impact of charges, other factors should also be considered when comparing pension plans. Retirement lump sum and monthly income based on https://www.pensionwise.gov.uk/en annuity calculator; actual annuity rates depend on many variables.