There can be a number of different fees and charges associated with your pensions. These generally cover the cost of the pension provider administering and managing your pension scheme, and the costs of investing your contributions. These fees can vary widely depending on the type of pension you have, the investments your pension is invested in and the provider you’re with.
The types and amount of pension fees and charges can differ between providers. All of these can add up, so it’s important that you know what you’re paying for in your pension. It can have a significant impact on your overall pension pot and the amount you’ll get in retirement.
Here are some of the key pension fees and charges that it’s helpful to be aware of.
The set-up fee is the cost of opening a pension. The amount you pay will depend on the provider. This type of fee is more common with older pensions and many providers these days won’t charge you a fee to open a pension with them.
Pension providers will charge you for the ongoing running and management of your pension. This cost is known as the annual management fee. It can be either a set amount or a percentage of the value of your pension pot. This fee is often automatically taken from your fund on a regular basis or once a year. Sometimes the annual management fee will incorporate other charges, such as the ones described below; however, this is not always the case. Make sure you check what charges are included in your annual management fee.
Some providers may charge a fee for administration costs, in addition to the annual management fee, while others include it as part of the annual management fee. This administration fee is also sometimes referred to as the service fee or policy fee.
If you have a self-invested personal pension (SIPP), you may be using a platform to manage your pension. The platform is the service that allows investors to buy and sell investments and the platform fee is the charge for using this service. The platform fee can vary considerably from provider to provider. Platform fees can be charged at a flat rate or on a percentage value of your funds. It may be included in the overall annual management fee or charged for separately.
Most pensions are invested in stocks and shares. A key part of investing is about buying and selling different funds. All investment funds have their own price, and this needs to be paid whenever they are bought by those managing your pension investments. This is referred to as the underlying fund fee, the trading charge/fee, dealing charge or transaction charge.
In addition to the fund price, you also need to be aware of the cost of market spread. Whenever funds are bought and sold on your behalf, there’s going to be a buying price and a selling price – the difference between these two prices is the market spread.
Some pension schemes have a clause in them whereby if you stop paying into your pension you’ll have to pay a fee.
The contribution charge is no longer a commonly seen charge associated with pensions. However, be aware some providers do still charge you a fee as a percentage of every contribution you make into your pension pot.
The exit fee, also known as the transfer fee or transfer costs, is the charge associated with either withdrawing or transferring your pension. These charges do vary substantially, particularly with older schemes. There is currently a cap of 1% exit fee on all new pension plans.
Flexible-access drawdown allows you to flexibly take money from your pension as and when you need to after the age of 55. There can be a number of different charges associated with this. For example, you will have to continue to pay the management and service charges associated with keeping some of your pension invested, but there may also be fees on each withdrawal you make or on the withdrawal of the 25% tax free lump-sum.
At Nutmeg, we’ll always let you know exactly how much you’re paying – there are no hidden fees and charges. We’re a discretionary investment manager, so we make the investment decisions on your behalf.
If you have a pension with us, you’ll pay an annual management fee, the fund costs and the effect of market spread. We do our best to keep these fees and charges as low as possible. We don’t charge you to set up or exit a pension and we don’t charge transaction or trading fees.
Like other investment managers, we charge a fee for managing your investments – the annual management fee. We charge this as a percentage of your portfolio value and it includes VAT. We calculate the fee daily based on your portfolio value at the close of business, and then collect the fee automatically from your Nutmeg account once a month.
When you invest with us, as with any other investment manager, we use your money to buy investments on your behalf. These funds carry their own charges that impact your portfolio performance. We primarily use exchange-traded funds (ETFs), as these help to keep your costs as low as possible. The investment fund cost also accounts for estimated transaction costs within the funds.
When you invest with Nutmeg, we buy and sell assets on your behalf. Like all trading activity, during this process we’re subject to market spread. This is defined as the difference between the price to buy, and the price to sell. We work hard to choose ETFs with smaller spreads and we combine customers’ money when trading to minimise this cost.
We want to ensure you get the support you’re looking for, which is why we offer a personal financial advice service. This service is separate to investing with us. If you’d like to try our advice service, the initial 15-minute phone call is free of charge. If, after the initial chat, you decide you want tailored recommendations and financial advice, we’ll charge you £350 including VAT to compile a report for you. Find out more about our personal advice service
As with all investing, your capital is at risk. The value of your pension can fall as well as rise and you may get back less than you invest. Eligibility to invest in a pension depends on personal circumstances. Tax rules may change in future. If you need help with pensions, seek financial advice. Note that you can't withdraw money from a personal pension until you're 55.