Fees for pensions- please help!

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
17 replies 1.3K views
williswillis Forumite
123 Posts
Part of the Furniture Combo Breaker
I am looking into getting a stakeholder pension. However, the one I am interested in has an annual fee of 1% of the balance. (£100 a year when I have £10,000) Is it normal to have to pay a fee for a pension?
I assumed it would be free, like a savings account.
Please help! ???
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Replies

  • DiggingOutDiggingOut Forumite
    770 Posts
    Yes, there are fees on pensions. One of the benefits of stakeholder pensions is the fees are generally lower. They have been capped at 1%, but the cap is probably going up.

    Providers such as Legal & General have a fee structure with lower fees, depending on the amount invested. You might check out their ePension, if you are really concerned about the fees.

    The theory is that your money is being invested by experts who will make enough money for you with their expertise that the fee is well worth it. In reality, this may or may not be the case -- the experts often get it wrong, too.

    The fee also pays for the paperwork, etc., of maintaining the pension, reporting to Inland Revenue, etc.

    It also pays a commission to IFAs, for an advertising campaign so they can get more people to buy pensions and pay fees, and for a nice salary for the senior executives of the pension provider. ;)
    I have five stars! This doesn't mean that I know anything about any of the things I post. I could be a raving lunatic, or a brilliant genius, or just some guy on the internet. In fact, I could be all three at the same time.

    If anything I say makes sense, then do it. If not, don't. Don't blame me or my stars if you do something stupid because I suggested it. I'm responsible for my own stupidity only. You are responsible for yours.

    Why, I don't even have five stars anymore! Aren't you glad you aren't responsible for my stupidity?
  • PalPal Forumite
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    ....and the not-so-nice salaries of the people who actually do the work.

    Most of the 1% fee goes to the investment managers, and the amount of the fee should depend what you are investing the money in. (e.g. equities more costly than bonds or cash).

    If you think about it, savings accounts are not "free" either. You "lend" your bank money, on which they pay between 0.1% and 5% p.a. They then lend that money out to other people through credit cards and loans at 10-30%, which is where they make their profit.

    With a pension the provider invests your money for you, and cannot lend it out to other people, so they charge the 1% fee instead.
  • dunstonhdunstonh Forumite
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    you didnt honestly think that the pension provider was going to give you a pension for free?
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • PalPal Forumite
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    I assumed it would be free, like a savings account.

    Yes, he did, which is why he wrote it in his original question. You did read the question, yes? ;)

    It is fairly common for people to think that they will not be charged for saving money, presumably because they are only used to banks that do not charge for savings accounts or most current accounts.
  • williswillis Forumite
    123 Posts
    Part of the Furniture Combo Breaker
    Thank you Pal :)- I really didn't know about pension fees. Like you said, I am used to having saving / current accounts where I pay no charge.
  • dunstonhdunstonh Forumite
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    Thank you Pal  :)- I really didn't know about pension fees. Like you said, I am used to having saving / current accounts where I pay no charge.

    You do pay a charge with those. Its indirect charging though. Bank makes upto 15% on lending and pays you 1% on your account. The 14% difference covers operating costs and charges.

    Investments/Pensions have direct charging which is disclosed in advance (a few exceptions which i will ignore). Ie, if the fund makes 15% you will still be charged 1%. If the fund loses 15% you will be charged 1%.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • DiggingOutDiggingOut Forumite
    770 Posts
    You can count on it that no bank is providing any service for free, except (like with 0% credit cards) to try to attract more customers to their profitable services. They are making money somewhere, otherwise they would go out of business.
    I have five stars! This doesn't mean that I know anything about any of the things I post. I could be a raving lunatic, or a brilliant genius, or just some guy on the internet. In fact, I could be all three at the same time.

    If anything I say makes sense, then do it. If not, don't. Don't blame me or my stars if you do something stupid because I suggested it. I'm responsible for my own stupidity only. You are responsible for yours.

    Why, I don't even have five stars anymore! Aren't you glad you aren't responsible for my stupidity?
  • Joe_BloggsJoe_Bloggs Forumite
    4.5K Posts
    @Pal
    Pension companies have huge amounts of our money in stocks, shares, bonds, cash, property, land, even art treasures. With this portfolio comes great power, responsibility and oppertunity to broker deals.

    The people in charge are remote from the contributers/ benificiaries. . Many contributers will die and never see a penny of their contributions. They can take their 1% from that!
  • PalPal Forumite
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    Actually, very few people die without seeing any of their money. Most of the time funds are refunded on death before retirement, and on death after buying an annuity most people have at least a 5 year guarantee that is payable. Then there are widows and dependants pensions to pay out.

    In any event, all the money "saved" by not having to pay pensions because someone dies early is used to subsidise those who live longer than the average and so cost the company more. If pension companies were allowed to keep the money if someone dies early annuity rates would rise significantly.
  • Joe_BloggsJoe_Bloggs Forumite
    4.5K Posts
    Sorry for the rant. I just don't think that pension companies are accountable enough. I'd prefer them to be mutually owned if possible. The recent taxation changes and  lack lustre equity performance have screwed us all. I am lucky that my pension company invested in bricks and mortar  in  their plush headquarters whilst losing a third of 'their' money in their last accounts.

    I had a uncle, a Merchant Sea Captain, who died on the day of his planned retirement at 65. His parrot lives on.

    PS I had better not spell loosing wrong.
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