All pension plans come with charges, but the size and nature of these pension fees will vary from provider to provider. It's important to know what you’re paying, as these charges can really eat into your savings. Pension charges range from annual management fees to costly exit fees.
What pension charges am I paying?
The charges you’re paying will depend on the fee structure chosen by your pension provider. When it comes to annual fees, for instance, the amount a provider charges for the same service can vary widely. PensionBee charges a single annual management fee, but plenty of providers take a different approach, and impose all manner of fees on top of this.
Many savers have absolutely no idea what they’re paying, so to clear things up here’s a brief overview of some of the most common pension fund charges.
The annual management fee pays for your pension management costs, such as the expenses involved in administration. It’s common for other pension providers to hide fees in small print and footnotes, so the headline annual management fee for your pension may not represent the total amount you’re being charged. Make sure you press your provider on the finer details of your annual management fee.
Underlying fund fee
The underlying fund fee is a widespread charge that pays the money managers. It’s a fee that’s often hidden in small print, and one that comes on top of the annual management charge.
Service or policy fee
This is another charge that’s sometimes hidden. In addition to the annual management fee some providers will stick this on, apparently to cover ‘administration costs’.
Inactivity fee
Some providers will charge an inactivity fee, which essentially means that if you stop paying into your pension you’ll be penalised.It’s occasionally referred to as ‘active member discounts’ in an attempt to give them a positive spin, so it’s important to keep an eye out for these, especially if you’ve moved jobs a lot and have several dormant pensions.
Contribution charge
A contribution charge is a percentage that’s taken out every time you pay into your pension. Some providers will impose a charge of 2% every time you pay into your pot, meaning that the cost of those monthly contributions can really stack up. Thankfully, this charge is much less common than it used to be, and you certainly won’t face this fee with PensionBee.
Exit fee
An exit fee is exactly what it sounds - a fee to withdraw or transfer your savings - and these can vary even more widely than annual management fees. Reports suggest some 670,000 savers have faced exit fees up to 10%, which has led to the Financial Conduct Authority imposing a cap of 1% for savers over 55, and an exit fee ban on any new plans. If you sign up to PensionBee and we discover that one of your pension providers charges an exit fee of more than £10, or that your pension comes with special benefits or guarantees (such as a guaranteed annuity rate), we’ll ask your permission before we complete the transfer.
Please be aware that we can’t guarantee to find exit fees or special benefits. We’re not always able to tell from a pension provider whether such features exist for a pension and are reliant on clear information from third parties. We do not check certain policies considered very low-risk, including where you ask us to waive our usual checking processes in your Account or over email.
Platform fee
Elsewhere, some providers will add another charge in the form of a ‘platform fee’ - essentially another cost they’ll impose just for the privilege of using their service.
No hidden fees with PensionBee
These are just some of the fees that you may be paying, out of a total of around 18 different pension charges levied by providers. At PensionBee, we do things differently. We charge a single annual management fee, which is taken directly from your pension pot. If you’re making a special request, we may charge fees for additional services. There are no hidden provider fees or platform fees with PensionBee.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Our pension plans are no different which is why our money managers (BlackRock, State Street Global Advisors and HSBC), will sometimes incur transaction costs when they manage your money. These costs are very small and cost around 0.04% of the value of your pension each year.
The charges can vary but are usually one or a mix of the following: A fund management charge or annual management charge (AMC): 0.5% to 1.5% on average, which is levied on the value of your savings each year. Different funds can have different charges. Entry fees/entry charge: from 2% to 5% of contributions usually.
pension. noun. pen·sion. : money paid under given conditions to a person following retirement or to surviving dependents see also defined benefit plan, defined contribution plan.
Pension expense is the amount that a business charges to expense in relation to its liabilities for pensions payable to employees. The amount of this expense varies, depending upon whether the underlying pension is a defined benefit plan or a defined contribution plan.
Sometimes also known as platform fees, you pay these to your pension provider to cover the administration of your pension. They're usually charged as a percentage of the money you've saved.
A 401(k) allows you some control over your fund contributions, while a pension plan does not. Pension plans guarantee a monthly check in retirement a 401(k) does not offer guarantees. However, 401(k)s are portable, meaning you can roll them over into another account should you change employers one or multiple times.
Whether you're eligible to cash out your pension will depend on the terms of your plan and how long you've been enrolled in it. If you are in fact eligible, you may have the option to take a lump sum distribution and roll it over into an IRA to defer taxes on the money.
The median private pension benefit of individuals age 65 and older was $11,040 a year. The median state or local government pension benefit was $24,980 a year. For More Statistics on the Income of Older Adults: Income of Older Adults from All Sources.
Pension payments are made for the rest of a retiree's life. Lump-sum distributions allow individuals to spend or invest the money. People who take a lump sum may outlive their money, while traditional pension payments continue until death.
A pension plan is primarily funded by the employer. Employees may be allowed or required to contribute. A retiring employee will have control over and responsibility for the money in their 401(k). A retiring employee who has a pension will begin receiving a regular, fixed payment for life.
Pension plans typically provide the payment of a set amount every month from your retirement date for the rest of your life ("an annuity"). You may also choose to receive lifetime payments that continue to your spouse after your death.
The first thing to decide is your desired retirement income. How much pension do you need to live comfortably? For a quick estimate, try the '50-70' rule. This suggests that you should aim for an annual income that is between 50% and 70% of your working income.
Normal cost is the contribution necessary, when added to investment income, to pay for benefits earned each year. The normal cost “prefunds” or “pays in advance” for promised pension benefits.
You can use this to track down both workplace and personal pensions. To do so, you'll need the name or the employer or pension provider and the dates you worked there. You'll also need your NI number.
The pension charges cap came into force in 2015. It applies to the defined contribution pension schemes that employers auto-enrol you in. If you're in one and have chosen its default arrangements: you'll never pay more than 0.75% of the total value of your pension pot in administration or investment fees.
Contribution charge means the fee charged by the trustee of a scheme against any contributions paid to the scheme. This fee is usually charged as a percentage of contributions and will be deducted from the contributions.
In addition to overall administrative expenses, there may be individual service fees associated with optional features offered under an individual account plan. Individual service fees may be charged separately to the accounts of those who choose to take advantage of a particular plan feature.
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