How Much Am I Paying in Pension Charges?

Why do pension providers charge me?

If you have a defined contribution pension, somebody has to:

• administer the pension;
• process contributions;
• provide statements and online access;
• hold and account for investments;
• manage investment funds;
• process transactions;
• maintain systems;
• and provide whatever services are included in your arrangement.

MoneyHelper explains that DC pension charges cover the costs of managing and investing pension money, with charges normally deducted from the pension automatically.

So charges themselves are not evidence that something is wrong.

Running a pension costs money.

The question is whether the cost is reasonable for the service, investments and benefits you're receiving.

Steve's observation

People sometimes say:

"My pension charges me 0.6%. That's outrageous — I want one that charges 0.3%."

Fair enough.

But before moving £200,000 to save 0.3%, I'd quite like to know what we're giving up.

Saving money is good.

Accidentally giving away something worth considerably more isn't.

What is an annual management charge?

One of the most common charges is an:

Annual Management Charge — AMC.

This is normally expressed as a percentage of your pension.

For example:

0.5% per year

on a £100,000 pension would represent approximately:

£500 a year

assuming the charge applied to the whole value at that rate.

A:

0.75% charge

would represent approximately:

£750 a year.

MoneyHelper explains that annual management charges commonly cover the cost of managing and investing the pension.

But don't stop when you find the AMC.

It might not be the only cost.

What are fund charges?

Your pension may hold one or more investment funds.

Those funds themselves can carry costs.

You may see terms such as:

Ongoing Charges Figure — OCF

or another fund-cost figure.

These costs cover the operation and management of the investment fund.

Depending on the pension arrangement, some fund costs may be incorporated within the headline charge while others may be shown separately.

So when somebody tells you:

"My pension only costs 0.25%,"

a sensible follow-up is:

"Does that include the underlying investment fund costs?"

Because comparing one pension's all-in cost with another pension's partial cost isn't really comparing anything.

What is a platform or administration fee?

Some pensions charge separately for the pension platform or administration.

You might see:

• Platform charge
• Service charge
• Policy fee
• Administration charge
• or similar wording.

This might be:

a percentage of your pension

or:

a fixed amount.

Some providers also use tiered charging.

For example, the percentage charged might reduce as the pension becomes larger.

MoneyHelper notes that schemes can use percentage or fixed charges and that some reduce their percentage rate once pension values pass certain levels.

The calculation therefore isn't always:

Pot × one percentage = total cost.

Sometimes you have to read the charging schedule.

I know.

Wild Friday night.

What are transaction costs?

Investments have to be bought and sold.

That can create costs.

MoneyHelper identifies possible transaction-related costs such as:

• buying and selling investment units;
• bid/offer spreads;
• dealing charges;
• and switching fees.

These can vary depending on the type of pension and investment.

They may not behave like a simple annual percentage charge.

The important thing is to recognise that:

the headline annual fee may not represent every cost associated with the investment.

Can I be charged for switching funds?

Potentially.

Some pension arrangements allow investment switches without an explicit additional fee.

Others might charge.

Likewise, if you have a SIPP and are choosing individual investments, there may be transaction or dealing charges each time investments are bought or sold.

This matters particularly if somebody is constantly changing investments.

Not only do they risk making poor timing decisions.

They may also be generating additional costs.

What about transfer or exit fees?

Some pensions may charge when money is transferred elsewhere.

Older contracts can sometimes have charging structures that look very different from modern pension arrangements.

MoneyHelper notes that some schemes can have transfer or exit fees, while older pensions can contain different or more complex charging structures.

The FCA has also highlighted concerns in 2026 about some legacy pension products, including complex charging structures and the possibility that customers in older products may receive poorer value than those in newer arrangements.

But that's not a licence to transfer every old pension you can find.

Older pensions can also contain valuable benefits.

We'll come back to that shortly.

Can financial advice be paid from my pension?

Potentially, yes.

If you receive regulated financial advice, adviser charges may sometimes be facilitated through the pension arrangement where permitted and agreed.

If that happens, those charges reduce the pension value.

That doesn't automatically make advice expensive or poor value.

Equally, the existence of an advice charge doesn't automatically mean the pension is being actively reviewed in the way you expect.

If you are paying an ongoing adviser charge, you should understand:

how much it is

and:

what ongoing service you are receiving for it.

Why do small percentages matter?

Because pensions are long-term investments.

And charges don't normally happen once.

They happen:

year after year after year.

Imagine two otherwise identical pensions.

One costs:

0.4% a year

and another:

0.9% a year.

The difference is:

0.5% a year.

On £100,000, that's initially around:

£500 each year.

But the longer-term impact isn't simply the fees deducted.

There is also the potential investment growth those deducted charges no longer receive.

That's why relatively small differences in cost can become meaningful over long periods.

MoneyHelper explicitly warns that even relatively small differences in pension charges can make a significant difference over time.

Does a 1% charge mean my pension needs to grow by more than 1%?

Broadly, costs reduce the return retained by you.

If the underlying investments grow before charges are deducted, some of that growth is used to meet the costs of the pension and investments.

This is why there is an important distinction between:

gross investment performance

and:

the return actually retained after relevant costs.

But don't get obsessed with one year's arithmetic.

Pensions are long-term.

What matters is the cumulative effect of:

performance

minus:

costs

over the period you hold the investment.

So should I simply find the cheapest pension?

No.

Cost matters.

A lot.

But price and value are not identical.

Suppose Pension A costs:

0.30%

and Pension B costs:

0.60%.

Is Pension A better?

Not enough information.

Perhaps Pension B contains:

• a valuable guaranteed annuity rate;
• protected tax-free cash;
• a protected pension age;
• better retirement options;
• a wider investment range;
• or other useful benefits.

Or perhaps it contains none of those things and is simply more expensive.

We need to check.

Value for money is becoming increasingly important

The UK pension regulatory direction is increasingly focused on judging pension schemes using more than price alone.

The FCA's current Value for Money proposals for workplace defined contribution pensions focus on areas including:

• investment performance
• costs and charges
• and: quality of service.

The objective is to move the industry away from competing simply on low charges and toward demonstrating better outcomes for pension savers.

That regulatory framework is still developing and should be checked before publication.

But the principle is useful now:

Cheapest does not automatically equal best value.

What about old pensions?

Older pensions deserve particularly careful checking.

Some may have:

• higher charges
• policy fees
• different charging rates on different units
• penalties
• or: older investment structures.

MoneyHelper notes that some older pensions may have charges that increase when contributions stop or may use different charging structures for different types of units.

That can make them confusing.

But older pensions can also contain:

valuable guarantees

or:

protected benefits.

So if you find an old pension costing more than your modern workplace pension, don't jump immediately to:

"Transfer it."

First ask:

"What would I lose?"

Could I save money by combining pensions?

Potentially.

If you have several defined contribution pensions, consolidating them might reduce administration and could sometimes reduce overall charges.

But consolidation is not automatically beneficial.

Our completed guide:

Should I Combine My Old Workplace Pensions?

already covers the workplace-pension version of this question.

Before transferring anything, we need to identify:

• existing charges;
• new charges;
• exit costs;
• investment options;
• guarantees;
• protected benefits;
• retirement options;
• and any other important features.

That's why cost comparison comes before the transfer decision.

How do I actually find out what I'm paying?

Start with:

• your latest pension statement
• your provider's online account
• the pension's charges document
• and: the fund factsheet.

Look for phrases such as:

• Annual Management Charge
• AMC
• Ongoing Charges Figure
• OCF
• Fund charge
• Platform fee
• Policy charge
• Administration charge
• Transaction costs
• and: Adviser charge.

If you still can't work it out:

ask the provider.

MoneyHelper specifically recommends contacting the pension provider if you're unclear about the fees being paid.

Ask them:

"What is the total ongoing cost of holding my pension and current investments, and are there any other charges I should know about?"

That's a considerably better question than:

"What's your AMC?"

Build your pension cost sheet

If you have several pensions, put them next to each other.

For example:

These figures are illustrative only.

The important thing is the final column:

Check.

Because if you don't know whether charges are included or additional, the comparison isn't complete.

What Should I Do Next?

Take every defined contribution pension you own.

Find:

• Pension/platform charge
• Investment fund charge
• Adviser charge if applicable
• Transaction or dealing costs where relevant
• Any fixed fees
• Any exit or transfer charges

Then calculate, as far as possible:

"What am I actually paying each year?"

Don't transfer anything yet.

Because before deciding whether a pension is expensive, there is one more extremely important question:

"Does this pension contain anything valuable that I could lose?"

That is where we go next.

Does My Pension Have Valuable Guarantees or Benefits?

Charges matter.

Ignoring them for thirty years because: "It's only half a percent" isn't sensible.

But neither is dismantling a valuable pension purely to shave a few tenths of a percent off the annual cost.

The aim is not: the cheapest pension possible.

The aim is: good value for what you actually need.

Steve's observation

Saving £500 a year in pension charges sounds clever.

Giving up a valuable guarantee to do it sounds considerably less clever.

So before we celebrate the saving:

let's check what was in the box first.

Know what your pension is worth — but have absolutely no idea what it's costing you? Find the total charges before deciding whether your pension is expensive or good value. If you'd like help understanding what you're paying, what you're receiving and how your pensions compare, speak to Open Door Wealth.