Employees could be paying three times too much in pension charges

retired pension planning

Most people contribute to their pensions every year. However, with the average person working 11 jobs in a lifetime, keeping track of multiple pension pots can get quite confusing.

Unhelpfully, pension providers often charge in different ways, which can make it hard to know exactly what you’re paying and where your money is going.

To clear the confusion, research from Profile Pensions finds the hidden pension charges you might be paying, what you should be paying and who’s the most likely to be in an expensive pension plan.

In more modern pensions, your pension provider charges are commonly made up of two factors: Fund charge and platform charge, with the sum of these being your total annual provider charge. But how much should you be paying in pension charges?

Profile Pensions have found 55% of people are in an expensive pension (>1% charge), 31% are in okay pensions (0.5-1%) and only 14% have cheap pension plans (<0.5%).

Profile Pensions’ data also reveals one in 10 people to be in very expensive pensions with charges above 1.5%.

Currently, the average annual provider charge on pensions is sitting at 1.09%, but Profile Pensions recommends pensions with annual provider charges that don’t exceed 0.34%.

Michelle Gribbin, Chief Investment Officer at Profile Pensions said, “Many aren’t aware that they even pay fees, let alone how much money they could be losing each year. Through our own research and data, we hope to raise awareness on the issue of pension charges and encourage people to take action to check their charges.

“Most people should be paying much less, ultimately costing themselves thousands of pounds over a number of years which could easily be avoided. Our data identifies a specific group of pension savers who’re particularly vulnerable to be paying very high fees, so it’s important these people act quickly to check if they’re being overcharged and take measures to reduce charges.

People pay on average three times more than they should for their pension, which can cost you £18,000 over 20 years and push your retirement back by 2-years

Profile Pensions internal data showed women are 19% more likely than men to be in a rip-off pension, where charges exceed 1.5%. Over half of women don’t know where to go to find out what their charges are, meaning they’re less likely to be able to take action to lower their costs.

Over 50’s and those with older pensions are also likely to be paying hidden pension charges. The most expensive pension plans had an average start date of 1997, while cheaper pension plans started much later, around 2006.

Because of fixed-rate charges, having a smaller pension pot could also mean you pay a higher percentage in pension charges. This means that those with smaller pensions are also likely to be overcharged for their pensions.