Figures from Interactive Investor, the DIY investment platform, show that 83% of UK adults don’t know what pension fees they’re paying, either in percentage or monetary terms. This is despite the fact that fees can have a huge effect on pension performance, and therefore the value of retirement pots.
Craig Rickman, pensions expert at Interactive Investor, said that while savers are able to switch their pensions to somewhere that provides better value, not knowing the charges means they “have no idea whether their existing pensions offer fair value.”
“Every pound you pay in fees that doesn’t translate to a better outcome is a pound less for you to enjoy in your golden years,” he added.
Pension fees
Pension fee structures can be complex, with some charged as a percentage and in tiers, so that larger pots attract lower rates.
The percentage system means, though, that despite these rates, those with larger pots end up paying very large fees.
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Rickman said fees that look appealing when you have a small pot add up quickly over time as your pot grows. Pensions may also have exit fees, fund charges and trading and account fees, which make it hard to compare.
“It can be difficult for consumers to understand the total cost,” he added.
Figures published last year by wealth manager Moneyfarm suggested that annual pension charges are 2.5% on average, although some providers have fees as low as 1%. Their calculations show that someone with a pension fund of £40,000 at the age of 40 could end up £37,000 worse off from a 2.5% charge than a 1% charge over time.
Assuming 5% annual growth, the pension pot would be worth £78,000 with the 2.5% charge and £115,000 with the 1% charge – a 48% difference.
Call for clarity
Interactive Investor is calling on pension providers to be clearer about charges. It has developed a new comparison tool so that you can see how your self-invested personal pension (SIPP) charges compare to other providers. It is available at https://www.ii.co.uk/ii-accounts/sipp/compare.
Camilla Esmund, manager at Interactive Investor, said: “We believe value should grow with your savings, not erode them. Transparency is key to better retirement outcomes.”
