What are pension charges?

All pension plans come with charges, but the size and nature of these pension fees will vary from provider to provider. It's important to know what you’re paying, as these charges can really eat into your savings. Pension charges range from annual management fees to costly exit fees.

What pension charges am I paying?

The charges you’re paying will depend on the fee structure chosen by your pension provider. When it comes to annual fees, for instance, the amount a provider charges for the same service can vary widely. PensionBee charges a single annual management fee, but plenty of providers take a different approach, and impose all manner of fees on top of this.

Many savers have absolutely no idea what they’re paying, so to clear things up here’s a brief overview of some of the most common pension fund charges.

Annual management fee

The annual management fee pays for your pension management costs, such as the expenses involved in administration. It’s common for other pension providers to hide fees in small print and footnotes, so the headline annual management fee for your pension may not represent the total amount you’re being charged. Make sure you press your provider on the finer details of your annual management fee.

Underlying fund fee

The underlying fund fee is a widespread charge that pays the money managers. It’s a fee that’s often hidden in small print, and one that comes on top of the annual management charge.

Service or policy fee

This is another charge that’s sometimes hidden. In addition to the annual management fee some providers will stick this on, apparently to cover ‘administration costs’.

Inactivity fee

Some providers will charge an inactivity fee, which essentially means that if you stop paying into your pension you’ll be penalised. It’s occasionally referred to as ‘active member discounts’ in an attempt to give them a positive spin, so it’s important to keep an eye out for these, especially if you’ve moved jobs a lot and have several dormant pensions.

Contribution charge

A contribution charge is a percentage that’s taken out every time you pay into your pension. Some providers will impose a charge of 2% every time you pay into your pot, meaning that the cost of those monthly contributions can really stack up. Thankfully, this charge is much less common than it used to be, and you certainly won’t face this fee with PensionBee.

Exit fee

An exit fee is exactly what it sounds - a fee to withdraw or transfer your savings - and these can vary even more widely than annual management fees. Reports suggest some 670,000 savers have faced exit fees up to 10%, which has led to the Financial Conduct Authority imposing a cap of 1% for savers over 55, and an exit fee ban on any new plans. If you sign up to PensionBee and we discover that one of your pension providers charges an exit fee of more than £10, or that your pension comes with special benefits or guarantees (such as a guaranteed annuity rate), we’ll ask your permission before we complete the transfer.

Please be aware that we can’t guarantee to find exit fees or special benefits. We’re not always able to tell from a pension provider whether such features exist for a pension and are reliant on clear information from third parties. We do not check certain policies considered very low-risk, including where you ask us to waive our usual checking processes in your Account or over email.

Platform fee

Elsewhere, some providers will add another charge in the form of a ‘platform fee’ - essentially another cost they’ll impose just for the privilege of using their service.

No hidden fees with PensionBee

These are just some of the fees that you may be paying, out of a total of around 18 different pension charges levied by providers. At PensionBee, we do things differently. We charge a single annual management fee, which is taken directly from your pension pot. If you’re making a special request, we may charge fees for additional services. There are no hidden provider fees or platform fees with PensionBee.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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