The Real Cost of Pension Fees: Why 1% Is Not a Small Number

Ask most people what their pension charged them last year and the honest answer is that they do not know. Charges are disclosed, but rarely in a form that lands.

Why the percentage misleads

A one percent annual charge sounds trivial against a pot that might grow by more than that. But charges are taken every year, on the whole balance, and they compound in exactly the way growth does. Over the final fifteen to twenty years before retirement, on an established pot, the cumulative difference between a competitive charge and an expensive legacy one is routinely measured in tens of thousands of pounds.

Where the charges hide

• The annual management charge on the policy itself.

• The platform or product charge, where these are separate.

• Fund charges, which vary substantially between active and passive strategies.

• Policy or administration fees on some older contracts.

• Adviser charges, where an ongoing service is in place.

What to ask for

Write to each provider and request a statement showing all charges applied in the last twelve months in pounds, the funds you hold, and performance against a relevant benchmark. Pounds, not percentages — the number lands very differently.

What to do with the answer

High charges are not automatically a reason to move. Some older policies carry guarantees worth far more than the extra cost. The point is to know what you are paying and what you are getting for it.

If you'd like these questions answered for your own situation, download our free guide, The Pre-Retirement Pension Review, or book a free no-obligation call at www.dmfinancialplanning.co.uk.

Important information

This article is for general information only and does not constitute personal financial advice. The value of investments can fall as well as rise and you may get back less than you invest. Tax treatment depends on individual circumstances and may change. A pension is a long-term investment; funds cannot normally be accessed until age 55 (57 from 2028). DM Financial Planning is a trading style of Aegis Financial Planning Limited, authorised and regulated by the Financial Conduct Authority (FCA No. 624298).