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Unaware investors pay £37k more for their pensions Test

25 June 2024

By Matteo Anelli,

Senior reporter, Trustnet

Britons are unaware of the fees they are paying for their pension, new research from digital wealth manager Moneyfarm has revealed.

One in two pension savers of the 2,000 surveyed are not aware that they are paying annual fees on their pension schemes and, of the half that are, a further 50% don’t know how much they are paying. Only 32% have a rough idea of their costs and no more than 18% knew the exact amount. This financial blind spot can be a costly one.

Average annual charges on pension schemes are 2.5%, which is “way over what would be considered a reasonable amount”, according to Carina Chambers, pensions technical expert at Moneyfarm.

This too isn’t in line with investor perceptions, as 53% of the nation think their fees are competitive and only 23% have ever thought to shop around and switch providers to benefit from lower fees for the same service.

Costs deducted throughout the life of an investment “play an enormous part” in the final retirement pot. Chambers considers around 1% to be “a reasonable amount”.

“A seemingly small amount in fees can lead to significant shortfalls over the long term. The difference between 2.5% and 1% doesn’t seem much, but when it comes to pensions, we are talking about a large amount of money which is invested over a long period of time. That apparently small percentage difference therefore compounds, so the losses we are talking about can be very significant,” she said.

In fact, a 40-year-old’s pension pot worth £40,000 will be worth £78,000 by the retirement age of 67, assuming a 5% annual growth, no extra payments into the pension and a 2.5% management charge.

The same pot, but with 1% annual charges, accrues to a final £115,000.

“That small 1.5% difference in fees could mean an extra £37,000 in your pension – a significant 48% difference,” Chambers stressed.

Typically, pensions come with three main associated costs: fund fees; platform charges; and management fees.

“Frustratingly, these charges are often hidden in the small print or in footnotes of the contract, so you may be paying fees that you are unaware of which could be reducing the size of your pension pot,” she said.

“Costs can be very hidden. It may be easier to think ‘why bother finding out’, but you really shouldn’t put your head in the sand.”



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