As with many products or services, your pension scheme will come with fees or charges. These costs can vary from ridiculously high to extremely low. Paying more than you need to will erode your pension funds, leaving you less money available for your retirement.
Paying higher charges doesn’t always mean the service you receive is top quality. Indeed, often the opposite is the case. Therefore, you must check your pension often to ensure it provides you with good value for money.
What types of pension charges might you be paying?
There are very various types of charges associated with pensions, and these include all or some of the following:
- Pension provider charges. These fees are often referred to as management charges. They pay for the running costs of your pension system.
- Platform charges. You may also find these being referred to as fund charges. They pay for the technology that makes trading possible and the trading fees.
- Ongoing management fees. If you use the services of a financial professional such as a regulated financial advisor, you will pay ongoing management fees. However, this money is not wasted. An ILC report from 2019 shows that those people who used a regulated financial advisor, on average, have around £30,000 more in the pension pots than those who did not.
How pension charges can affect your pension pot.
Even if you are paying slightly more or less in pension fees, it can significantly affect your pension pot. You must understand what charges apply to your pension scheme and how these will affect your pension funds.
Failing to understand your pension charges entirely means that they could be eroding your money considerably, potentially leaving you short of funds for when you retire. If you are unsure about any aspect of your pension charges, you should contact your pension provider as soon as possible to find out. Alternatively, consult a regulated financial advisor to get assistance with this matter, check out Portafina.
Why do some pension providers have lower charges than others?
Just because you are paying higher pension charges doesn’t necessarily mean you will get a better quality of service. Often, the reason for higher costs is because your pension is run on an old system.
Technological advances in the financial world may have been around for some time, but some pension providers still use paper-based systems. Such systems tend to be slower and more expensive to manage. Therefore, the result is you pay more for another quality of service.
Modern pensions benefit from the efficiencies that new technology provides. They are more straightforward to manage, meaning lower charges for you.
How to reduce your pension charges?
Although dedicated companies will combine your pensions with the promise that they will reduce charges, this is not always the case. That is because such companies’ top priority is to combine your pensions, with charge-reduction as a secondary aim.
An excellent way to ensure you were paying as low pension charges as possible is to get help from a regulated financial advisor. They will look at your pensions and analyse what you are paying in pension charges. They will then compare your pension products with others available in the market and help you decide if it makes sense to stick with your current pension or switch to another.
Do you think you’re paying no pension charges?
Several years ago, a popular retirement product was the with-profits pension scheme. These were incredibly popular at the time, and they came with the promise of being free of charges.
However, this was not the case, and the charges were just not as transparent with other pension products. There were also some other issues associated with these products that we were not going into in this article.
Conclusion
Pension charges are inevitable, but it doesn’t mean they have to be unreasonably high. You must understand what charges you are paying, so you can adjust your pension if needed. Being aware of your pension charges will ensure you maximise your pension funds for a comfortable retirement.
