How excessive fees can fleece pension savers

Pension savers could be paying tens of thousands of pounds in unnecessary charges over the course of a lifetime.

Pension savers could be paying tens of thousands of pounds in unnecessary charges over the course of a lifetime. New research suggests that life insurers, which have traditionally dominated the market for private pension plans, charge over the odds.

The study from Interactive Investor, the online investment platform, says pensions offered by online providers offer a better deal: a 38-year-old saver with a £100,000 pension plan today and investing £10,000 a year for the next 30 years could lose almost £100,000 owing to excess charges.

Check the type of fee

The data is based on the charges levied by pension providers for access to the same funds. Traditional life insurers fare very badly in such comparisons as they tend to have percentage-based administration fees; as the savers’ funds appreciate, these become very costly. Flat fees, by contrast, are often much more affordable.

As a result, the saver above making use of Standard Life’s self-invested personal pension (Sipp) would see their final pension fund value reduced by £94,800 compared with Interactive Investor’s own Sipp, the platform says. At Aviva, the saver would be £43,300 worse off. At Scottish Widows the equivalent figure is £33,400.

In practice, the exact figures will vary, not least because administration costs are not the only variable. Savers will also pay dealing charges when changing the investments in their pensions and may need to take into account income-drawdown charges later in life.

Broadly, however, Interactive Investor’s criticism of the life insurers that account for a large part of the pension-fund market is accurate. Percentage-based fees do penalise savers with larger funds and even leaving this structural issue aside, several insurers charge uncompetitive percentages. Savers will need to consider their own circumstances, including the size of their pension funds and how often they might trade. The price-comparison service Moneysavingexpert recently picked the platform run by stockbroker AJ Bell as the most affordable option for funds worth less than £50,000; although it charges percentage-based administration fees, these are competitive and do not work out more expensively than flat fees on smaller funds. Moneysavingexpert’s pick for larger funds was Interactive Investor. 

These comparisons apply only to individual pensions. Those saving through a workplace scheme will be charged differently, depending on the deal their employer has negotiated, and will also benefit from their employer’s contribution.

Recommended

Make sure your pension savings don't breach the lifetime allowance
Pensions

Make sure your pension savings don't breach the lifetime allowance

Don’t forget the lifetime allowance when reviewing your pension planning – breaching it could prove very costly, says David Prosser.
7 Jan 2022
How to track down your lost pension savings
Pensions

How to track down your lost pension savings

Some straightforward detective work could reunite you with pension savings from previous jobs that you may have mislaid.
20 Dec 2021
What to do if you still have a mortgage when you retire
Mortgages

What to do if you still have a mortgage when you retire

In the next few decades, many people will be paying back their home loans well into retirement. David Prosser explains their options.
7 Dec 2021
Making sense of the new minimum pension age rules
Pensions

Making sense of the new minimum pension age rules

The rules surrounding the minimum age at which you can start tapping into your retirement savings have been tweaked, but are still confusing. David Pr…
23 Nov 2021

Most Popular

Five unexpected events that could shock the markets in 2022
Stockmarkets

Five unexpected events that could shock the markets in 2022

Forget Covid-19 – it’s the unexpected twists that will rattle markets in 2022, says Matthew Lynn. Here are five possibilities
31 Dec 2021
Which investment trusts performed the best in 2021?
Investment trusts

Which investment trusts performed the best in 2021?

Shivani Khandekar runs through the top ten investment trusts of 2021 – and the worst performing trusts – and looks ahead to 2022.
7 Jan 2022
The booming jobs market points to inflation lasting for longer
Economy

The booming jobs market points to inflation lasting for longer

It’s a good time to be looking for a job, with plenty of vacancies and wages rising. But higher wagers are driving inflation up – and it’s not just a …
11 Jan 2022