Many people are keeping a much closer eye on their pension fund performance in order to assist with retirement planning. These days, there is much more choice between pension providers, such as different investment funds and ways to withdraw your savings. However, you could still be losing money. All pension providers charge for their services, and the last thing you want is for your careful retirement planning to be spoilt by hidden pension fees.
A guide to pension fees
Some pension fees are less common these days: you are less likely to be charged a set-up fee when you initially start a new pension, for example. However, all pension providers charge in some way. Unfortunately, these can vary enormously between providers – and an even bigger problem is the charges that are buried in the small print.
The annual management fee is supposed to cover administration expenses. However, there could also be a service or policy fee on top of this, and it is often unclear exactly what this covers. Many pension providers offer the benefit of an expert pension fund manager.
They will look after your pension on your behalf, for example monitoring your investment funds to make sure they are performing well. This is often a good choice, as they can work within the level of risk and reward you are comfortable with. However, this comes at a cost, either as a flat fee or a percentage-based fee (depending on the value of your pension fund).
A Self-Invested Pension Plan (SIPP) has similar risks. Although there are many advantages, such as flexibility and tax benefits, each fund invested may charge a fee for management. Your SIPP could have multiple pension fund managers, each charging their own separate fee.
Other fees are harder to find Some providers charge an inactivity fee if you stop paying in. If you have a previous workplace pension, this inactivity fee could be causing your pension fund to shrink rather than grow. On the other hand, a few providers also have a contribution charge, a percentage taken out when you pay into a defined contribution pension. Finally, there are often costs involved if you wish to transfer your pension, or exit fees if you want to leave a scheme entirely. This could potentially wipe out any other benefits of pension transfer.
It can be complicated to work out exactly what you are being charged by your pension provider, especially if you have more than one pension. However, it makes financial sense to find out what you are being charged. As our pension calculator shows, what seems like a small change in provider fees can have a big effect on your final pension pot.
Get advice from experts
Getting expert financial advice is the first step towards making sure your private pension performs for you, and that you will get the largest retirement fund you can. An independent financial adviser like Pension Works, that is regulated by the Financial Conduct Authority, is the best place to carry out a pension assessment. We will only work in your best financial interests and get the best deal for you. Your pension is an incredibly important investment, which may well be your sole source of income in your retirement apart from a state pension. A pension adviser, like the team at Pension Works, will check to see how much you are being charged – and work with you to see how to keep these pension fees as low as possible.