Pension fees can significantly impact your retirement savings over time, with even seemingly small amounts cutting into your bottom line over the decades. It is vital that you find out exactly how much you are paying so you can compare it to the national averages.
Knowing where to look is actually simpler than it may seem, but there are a number of charges you should look out for.
Find Out What You Are Paying
The majority of UK pension savers, 83%, have no idea what they are paying in pension fees, according to research from Interactive Investor. To remedy this, start by checking your pension provider's annual statement, online account, or scheme documents. Look for charges such as:
- Annual management charge (AMC) – The ongoing fee for managing your pension.
- Fund management fees – Costs associated with the investments held within the pension.
- Platform or administration fees – Charges for running the pension account.
- Transaction costs – Expenses incurred when investments are bought and sold.
The most useful figure is often the total annual percentage charge.
Average UK Pension Fees
A good starting point is comparing your total costs to the UK averages, as fees typically range between 0.30% and 0.75% annually, depending on the type of scheme. While older or legacy pension schemes can sometimes charge over 1.00%, the average provider charge for auto-enrolment workplace schemes sits around 0.48%.
Different Types of Pensions
- Workplace pensions – Capped by law at 0.75% a year for default investment arrangements. Most modern qualifying workplace schemes cost between 0.30% and 0.50%.
- Personal pensions – Often range from 0.35% to 0.75%, though this can drop to 0.10%–0.30% for very large pension pots or specific low-cost provider options.
- SIPP (Self-Invested Personal Pension) – Typically feature a smaller platform fee (usually between 0.15% and 0.45%) combined with separate underlying fund charges, making costs highly variable depending on your investment choices.
Pension Fee Considerations
It is important not to dismiss a fee solely on its cost, but also assess the benefits it may provide. For example:
- Does the pension offer a suitable range of investment options?
- Are there valuable guarantees or protected benefits?
- Is the scheme well managed and easy to use?
- Has investment performance been reasonable relative to the level of risk taken?
A low-cost pension is not automatically better if it does not meet your needs.
Expert Comment
Antonia Medlicott, Founder and Managing Director at London-based Investing Insiders, said: There is a big knowledge gap when it comes to understanding pensions. Pension fees, in particular, are very poorly understood. And that means far too many people are paying more than they need to be – and losing out on precious retirement income as a result.
Differences of less than one per cent might not seem worth worrying about. And over the course of one year, you could only be talking about relatively small amounts. But it is when you start compounding those differences over the lifetime of a pension that you see how important fees are.
Let us say you have £50,000 invested for 30 years and growing at 5% per year: With 0.5% annual fees, you would end up with £187,265 at the end. With 1.5% fees, you would only end up with £140,340. That is a whopping £46,925 difference. Those kinds of figures could mean the difference between the retirement of your dreams and one plagued by money worries.
