Pensions Week: Step 4 – Find Out The Fees

Fees can affect your overall pension returns. What can seem like a small fee change or percentage difference could, in fact, end up costing you a large amount over many years.

And by the time you come to retire, that could result in thousands of pounds in lost potential returns because every penny that is lost to fees is also a penny that can’t earn returns, which compound the growth.

Pension fund costs vary. Those different charges reflect differences in:

• Management styles (active vs. passive): Active funds use managers to select investments aimed at beating the market, while passive funds instead try to replicate the overall growth of a market index, and don’t require as much intervention from fund managers.
• Administration costs
• The complexity of the investment strategy

Actively managed funds could charge as much as 1%–2% per year.
Passive/index-tracking funds — the cheapest type — can be as low as 0.1% per year.

It isn’t a case of having to pay whatever price you’re quoted – you can ask to be put into a lower-priced fund.

Action: Log into your pension and look for a section called, ‘Your charges’ or ‘Your fees’.

You’re looking for the yearly percentage they take from your pension. It’s often called the Ongoing Charges Figure (OCF). But it’s also sometimes referred to as:

TER (Total Expense Ratio)
Annual Management Charge (AMC)
Ongoing fees / Ongoing charge

If it’s high – around 0.75% or higher – you could reach out to your provider through your portal messaging system, and ask: “Are there any lower-cost fund options available for my pension?”

To be clear, you might be happy with 0.75% for the performance and management style you’re seeking. In contrast, you could be paying far less, but still feel like you’re paying too much.

If you think you might be overpaying, ask the question and see what alternative funds your provider can suggest for your risk profile and goals.