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How Charges Affect Your Pension

How Charges Affect Your Pension

As is the case with most financial products, the setup and running of your private and workplace pensions come at a cost. Depending on the pension scheme you choose, you could be paying a substantial amount, eroding into the value of your nest egg.

You might not give much thought about the charges you are paying on your pension but it pays to review your pension regularly through a financial adviser from a company such as Portafina, or other regulated advisers.

What types of charges could you be paying on your pension?

Provider charges – these charges are applied to your pension to cover the annual platform and management fees.

Platform/fund charges – these charges are cover the cost of the technology and other systems that are used to trade and administer the pension.

Management charges – these charges are paid to financial specialists such as financial advisers, who manage the pension for you. Specially managed pensions usually have significantly better returns than others.

How charges could affect your pension

When looking at the charges associated with your pension, you might feel that they are relatively small, so a percentage here are there won’t make much of an impact. You’d be mistaken for thinking that. Over the course of saving for your pension, being charged 1% more could reduce your pension pot by as much as 18%.

To get the best value, look for providers that charge 0.5% or lower per year.

Why do charges vary between providers?

When it comes to pensions, you may think that you get what you pay for, that a premium service means a premium price. This isn’t the case at all. Traditionally, many of the funds charging higher amounts are doing so due to using legacy systems and antiquated methods that cost more to run.

Digital technology has changed the pensions industry almost beyond recognition. Newer funds utilising this technology can run their services more efficiently and for less money. Many of the older institutions are still playing catch up.

Some years ago, certain pensions were marketed as being free of standard charges. These were known as with-profits pensions. While charges are not applied in the standard way, you will still be paying for the running of your pension in other, less transparent ways.

How to reduce your pension charges

As illustrated earlier, a small change to the charge on your pension can have huge consequences for your retirement savings.

Start by consulting a regulated financial adviser. They will be able to look at your current workplace and private pension plans and give you advice on how to get the best returns for the lowest rate.

In some cases, they may recommend consolidating your pensions or moving them to a better performing scheme with lower charges.


It is always worth getting your workplace and private pensions checked by a financial adviser. If nothing else, they will be able to confirm that you already have the best pension for your particular circumstances. In many cases, you will be able to move to a more suitable pension scheme that charges less, which could add a huge amount to your pension total when it comes to retiring.

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