Don’t wait until it’s too late to move to a low cost pension

Back to results

You wouldn’t run a bath without putting in the plug, but when it comes to saving into a pension that’s exactly what millions of people are doing.

Too many savers put money into a pension without ever checking how much they’re paying in charges; letting too much money leak out of their pot. 

Big spread in pension charges

A recent article(Opens new window) in the media found that annual management charges for personal pensions could vary from 0.6% to 2.9%. There are also big differences in the charges payable in workplace pension schemes.  

The annual management charge is the fee for administering your pension and the investments you hold within it. The percentage is levied against the value of your pension pot.

In recent years the pension industry has done a lot to reduce charges and make it easier to see exactly what you’re paying. But many savers are still members of older schemes that tend to carry bigger charges.

If, for example, you’re in your 40s, you may have set up a personal pension many years ago. You’ve probably worked for two or three different companies and may have joined the workplace pension that each of them offered.

When you changed jobs, did you stop paying into the old scheme and start paying into the new one, without transferring your savings across? If you did you’re like many other people in the UK and will have multiple pension pots that you no longer contribute to and probably haven’t looked at for years. 

High charges cost you dear

And this is the problem. Let’s imagine you’re 40 and you’ve built up £40,000 in one of these older schemes that you’ve stopped contributing to. The value of your pension pot is growing at 2.5%, but you’re paying an annual management charge of 1.5%. On that basis you’d have £52,328 by the time you were 67.  

But if you moved to a scheme with lower charges, say 0.64%, you’d end up with £65,790 by the time you were 67. That’s more than £13,000, showing just how big a difference lower charges make.

The longer you leave your money in a pension scheme that has high charges, the more you’ll pay and the less you’ll have for later life. It’s important, therefore, to look out documents for all of your old pensions and to find out what you’re paying.

You should also check that transferring your money to a lower cost scheme won’t trigger charges that would make the move pointless, or if you’d be giving up valuable benefits. For example, many older personal pension schemes, typically those sold before 1988, offered guaranteed annuity rates that are around double what is available now and so it’s unlikely you’d want to give these up. 

Take time to check charges and get help if you need it

But unless you take a little bit of time to check, you won’t know what benefits your schemes offer, how much you’re paying and whether you could save money by switching to a lower cost pension.

If you’ve got lots of different pensions, bringing them together or consolidating them, makes looking after your savings a lot easier. It could also save you a good deal of money and leave you better off in later life. Our guide to pension consolidation could get you going and if you need any help our Aegon Assist team is on hand.

Don’t let money pour out of your pension because you haven’t checked the charges you’re paying. You could be losing tens of thousands of pounds and who can afford to do that?