Dubbed a ‘slow, lethal killer’ by many financial advisers, pension fund charges can potentially limit your overall pension pot without you even noticing. All pension plans come with charges, but the impact they have on your pension savings heavily depends on the provider. To help you make the right decision when it comes to choosing your pension provider, we’ve compiled a quick breakdown of the most common fees that providers may charge you.
Annual management fee
As the title suggests, this is the charge that covers the management of your fund, usually attributed to administration costs. It’s common for many providers to hide fees in the small print of their service document, so it’s worth pressing your provider on the finer details of your annual management fee and what it covers. One of the most common of these ‘small print fees’ is an underlying fund fee that’s used to pay money managers, usually added on top of the annual management fee.
This is one to watch out for if you have several dormant pensions from jobs you’ve had in the past. Many people forget the brief pensions they were auto-enrolled in when they started their first jobs. It’s worth checking up on these funds and consolidating them into your current fund as many providers charge a fee if you stop paying into your pension. This is often referred to as losing your ‘active member discount’ to keep the fee in a positive light.
Though the fee seems to be dying out, a few providers still utilise it and it’s worth checking with yours. Contribution charges are taken out every time you pay into your pension and can even cost you up to 2% of each contribution. So it’s safe to say that these charges can easily stack up on a month to month basis.
An exit fee is what you’d expect – a fee to withdraw or transfer your funds from your pot. The current cap is set at 1% of funds removed from the pension fund, however, there are certain providers that offer lower exit fees. Your provider may also offer a range of different investment funds where you can invest your contributions. If you want to transfer your funds from one fund to another, there could be a charge. However, your provider may offer a certain number of free switches each year. A way to avoid this fee is to select a different fund for investing your future contributions, though it’s worth checking with your provider whether there’s a charge to redirection contributions.
As you can see, there are a lot of different fees that could be applied to your account: we highly recommend you contact your provider to get a clear picture of how your money is being handled.
The value of your investment may go down as well as up and you may not get back your initial investment.