Pensions are similar to other products and services in that they come with charges. These fees range from delightfully low to worryingly high. If you are paying too much, your pension charges could erode your retirement fund over time.
A particular concern is that you might not receive a better service despite paying higher charges. Indeed, often the opposite is true, so you will end up paying more money for nothing in return. Therefore, it’s crucial to check your pension regularly to ensure you receive the best value for money.
Types of pension charges you could be paying
There are various types of pension charges, and you could be paying some or all of these:
- Management charges. These are also referred to as provider charges, and they pay for your pensions system costs.
- Platform charges. Another name for these fund charges. These fees are generally relatively low and cover trading, systems, and technology that enables trading.
- Ongoing management charges. If you use a financial professional such as a regulated financial advisor to manage your pension, you will pay ongoing management charges. You should not be concerned about these, as an ILC report from 2019 revealed that people who seek financial advice end up with an average of £30,000 more in their pension funds.
What effect do pension charges have on your money?
Paying even a small amount extra in pension charges can impact the size of your retirement fund. Therefore, you should understand what charges apply to your pension scheme and how these affect your money. If you fail to understand your pension charges, they could be eroding your savings without you knowing. A regulated financial advisor can help you understand your pension charges. Check out Portafina.
Why do pension charges vary between providers?
Although it is annoying, it is a fact that different pension providers charge different levels of fees. Often, higher costs come down to your pension being managed on an older system. These tend to be more costly because of the administration involved in using an older technology.
More modern pension systems benefit from digital technology that speeds up management routines and lowers administration. Therefore, it is unsurprising that these systems cost less than paper-based ones. That is why you could end up paying higher charges and receiving a lesser service.
Even though your provider may have updated their systems, your pension plan may still be waiting to be updated. Your provider could have either overlooked your plan or perhaps they are hoping you will not notice the higher charges. Generally, modern pensions provide you with a much better deal.
Reducing your pension charges
Speaking with a regulated financial advisor is an excellent way to start reducing your pension charges. Another option is to use a pension combining service.
Pension combining services do not provide any advice, and the primary function is to combine your multiple pensions into a single plan. Therefore, any reduction in charges may be consequential but not guaranteed.
If you use a regulated financial advisor, they will look at your current schemes and compare them with similar products on the market. They can then see if pension plans are available that come with lower charges.
Could you have a pension with no charges?
Several years ago, with-profit pensions were a popular option for retirement savings. Providers sold these plans with the promise of having no charges. However, they did come with fees, but these were not transparent.
If you have a pension plan, you will undoubtedly be paying some charge for the service. Hopefully, this article will help you understand what types of pension charges you are paying and how you can reduce them to boost your retirement funds.