A warning has been issued as over half of Brits could be at risk of charges worth potentially thousands on their pension pots.
Research from digital wealth manager Moneyfarm has found that around one in two Brits were not aware of the annual fees they were paying on their savings to their pension provider. The same amount did not know how much was being taken out each year. Only a third (32%) roughly knew how much they were paying and just 18% knew exactly how much.
Moneyfarm warns that its findings show that these "hidden costs" are a financial "blind spot" for the majority of people and could add up if they are not aware. On average, Brits were paying an annual charge of 2.5% which according to Moneyfarm is "way over" the reasonable amount of 1%.
Carina Chambers, pensions technical Expert at Moneyfarm says, “A seemingly small amount in fees can lead to significant shortfalls over the long term. The difference between 2.5% and 1% doesn’t seem much, but when it comes to pensions, we are talking about a large amount of money which is invested over a long period of time. That apparently small percentage difference therefore compounds, so the losses we are talking about can be very significant.”
According to Moneyfarm, a 40-year-old with a pension pot of £40,000 - paying a fee of 2.5% - would have £78,000 by the age of 67 if it grew 5% each year and paid nothing else in. However, the same pension pot would contain £115,000 if the fee was only 1% - a difference of 48% or around £37,000.
How to check if you’re owed £6,900 in state pension back-payment in 2023
Moneyfarm noted that pensions often come with three main associated costs; fund fees, platform fees and management fees. Carina explained: “Frustratingly, these charges are often hidden in the small print or in footnotes of the contract. For that reason, you may be paying fees that you are unaware of which could be reducing the size of your pension pot.”
Over half of the people surveyed said they had "no idea" about the types of charges they could be paying on their pension while 90% didn’t realise platform charges were associated with having a pension. Moneyfarm said it was no surprise that 39% say that pensions are one of the most "financially confusing things in life".
Carina added: “We hear anecdotally, and it is backed up by this survey, that people find it hard to understand what charges they are paying on a pension scheme – even when they have the statement in front of them. They can be very hidden. It may be easier to think ‘why bother finding out’, but you really shouldn’t put your head in the sand. Our caution is that whilst charges can sound minuscule, over time it could make a massive difference – a difference to the tune of tens of thousands of pounds – to your final pension pot, so shop around.”
Read more similar news:
Comments:
comments powered by Disqus
