Do you know what you pay in pension charges? Here’s how they could affect you.

As with most products, pensions come with charges. These fees can be wonderfully low or punishingly high, and the higher they are, the more they could be eroding your savings.

Unfortunately, just because you are paying higher charges does not necessarily mean you will receive a better quality of service. Indeed, the reverse is often true.

Therefore, you are effectively forking out money for nothing. Consequently, it is crucial to check your pension frequently to ensure you are getting a good deal.

Types of pension charges.

There are various types of pension charges, such as the following:

• Management charges. These pay for the cost of the system on which your pension resides.
• Fund charges. Typically low, these charges cover trading fees and the technology that enables trading.
• Ongoing fees. If you use a financial specialist to manage your pension, you will pay them an ongoing fee. You should not be too concerned by these, as a recent ILC report proved people who receive professional financial advice end up with around £30,000 extra in their pension.

How do these charges affect you?

Percentage differences between management charges may be minute. However, they can still make a massive difference to your pension pot. Therefore, it is crucial to understand what charges you are paying and how they affect your funds.

If you fail to understand them, pension charges could erode your retirement savings without you being aware. You should find out from your pension provider or ask a financial advisor to help you. Look into Portafina.

Why do pension chargers differ between providers?

It may seem annoying, but paying higher pension charges doesn’t always guarantee better service. Often, high management charges result from your pension using an old system.

Digital technology has made managing pensions more straightforward. However, some providers still use paper-based systems. As you’d expect, these are slower, cumbersome, and more expensive. Therefore, you end up paying more but getting a worse service.

Also, some pension schemes have not undergone an update or review for many years. This situation could be due to providers forgetting about such schemes. However, it may also be a result of them hoping you won’t notice the high fees you are paying.

As a general rule, modern pension schemes utilise the latest technology, making them more efficient and cheaper to administer. The result is that you get better service at a lower price.

Reducing your pension charges.

The best way to start reducing your pension charges is to consult with a financial advisor. Although specialist companies offer to reduce costs by combining your pensions, this may not be your best option.

The issue with using one of these companies is that you may not receive reduced charges. Their main aim is to combine your pensions into a single scheme, and reducing your costs is secondary. Therefore, you may end up no better off than before you combined pensions.

Instead, a financial advisor can analyse your pensions and charges. They can then compare your plans with similar products on the market, so you can decide on the best scheme.

Could you be paying no pension charges?

Several years ago, with-profit plans were a popular pension scheme. They were sold partly on the promise that they contained no charges. However, this was not the case.

It is not that these schemes had no charges but that the costs were concealed elsewhere. Therefore, regardless of the pension scheme, you are likely to be paying some charges.