Planning for retirement is a crucial aspect of financial management, yet many people may unknowingly be shortchanging their future due to these hidden pension charges. Our latest research* has unveiled some alarming statistics: half of Brits are oblivious to the fact that they are paying annual fees on their pension schemes. Even among those who are aware, half admit they have no idea about the specific amount they’re paying, and a staggering 73% are uncertain about how to find out.
These hidden costs are proving to be an unfortunate yet significant blind spot for many people saving for their dream life after work. For example, the same research also revealed that, on average, many savers are paying annual charges of around 2.5% on their pension pots—well above what many pension experts would consider reasonable. Despite this, over half of the respondents believe their fees are competitive, and only a small fraction have considered shopping around for better deals.
Carina Chambers, Moneyfarm’s resident pensions expert, recently set out the impact of these charges to national media, covered in Moneyweek, FTAdviser and the Express about this important subject for savers. “A seemingly small difference in fees can lead to significant shortfalls over the long term,” she explained. For instance, a 1.5% reduction in annual charges could result in an additional £37,000 in a pension pot over several decades**. This underscores the importance of understanding and minimising these costs early on in your retirement planning journey.
Pensions typically come with three main types of charges: fund fees, platform fees, and management fees. These are often buried in the small print of contracts, leaving pension holders unaware of how much they are actually paying. Perhaps surprisingly, many respondents were unaware of these charges, with a large majority not realising they were paying VAT, admin fees or even the basics like management fees associated with their pension savings.
The complexity surrounding pension charges contributes to a broader issue of confusion and uncertainty around retirement planning. A significant number of people surveyed said that they felt overwhelmed by the whole process, with many admitting they will likely never fully understand it, making having the proper financial guidance so important.
Carina goes on to emphasise the need for greater transparency from providers and awareness about these hidden fees for savers: “Whilst charges may seem negligible, they can compound over time, potentially resulting in tens of thousands of pounds lost from your final pension pot.” Her advice? Don’t ignore or simply accept these high fees—take the time to understand what you’re paying to each provider and consider exploring alternatives to get the best possible deal.
While many Brits remain unsure about their retirement plans, with a notable lack of confidence in their current retirement saving plans, “It’s crucial not to bury your head in the sand when it comes to pensions,” notes Chambers. “Every pound saved on fees today could make a substantial difference to your quality of life in retirement.” This is especially true when thinking about the effects of compound interest can have on your savings over the years.
Educating yourself about pension charges, or speaking to a financial consultant, and taking proactive steps to minimise them can significantly enhance your long-term financial security. Whether you’re nearing retirement or just starting to save, being aware of these costs is essential for maximising your pension pot and ensuring a more comfortable life after work. So, don’t wait—start reviewing your pension provision and charges today. Your future self will thank you for it.
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*This research of 2,000 Britons was commissioned by Moneyfarm and conducted by Perspectus Global during June 2024.
** Calculation assumes a starting pension value pot of £40,000 over a 27-year period. Comparison of 2.5% in charges compared to 1% in charges.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
