Five Questions About: 'Hidden' pension charges

 

More hidden charges? What now?

A think tank this week accused the pensions industry of not being clear about charges, so while savers may think they're only paying 0.5 per cent, they could be paying 1.5 per cent.

But that's only an extra 1 per cent?

Yes, but according to the Royal Society for Arts (RSA), a charge of 1.5 per cent would produce a pension pay-out a third lower than a fund with a 0.5 per cent charge. A 1.5 per cent annual charge works out at 37.5 per cent over a 25-year pension.

Crikey! So the charges quickly add up?

Indeed they do and they eat into your pension pot. A small extra charge can mean tens of thousands less when you come to retire.

But which charges are hidden?

Your pension company has to tell you about the annual management charge. That could be 0.5 per cent. But audit and custodial costs are charged separately and, on top of that, there are also taxes, broker commissions, stock-lending fees and costs associated with different assets.

So what I can do to cut these charges?

Not much. A clearer way to compare charges is needed. The RSA has called for firms to give savers a statement before purchase which shows the likely effect of the charges.

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