Understanding the charges to my Pension Fund

kfahri342

Hi All,

I am 25 years old have been enrolled in my company's pension scheme for the last 2years. I have recently been more involved about taking care of my future finances and after reading several articles/books on the matter. I have recently decided to increase my contribution to 15% from 3% with my employee contributing 3% [as of Mar-18].

The next step I want to do is understand the costs of a pension fund, particularly when comparing an Active Fund against a Passive Fund. I spoke to my pension provider and they advised me that the only charge that concerns me is the "Annual Charge" associated to each fund and nothing else!.
Having a review of the funds they provide, for both Active and Passive Funds, on average they range from 0.5% -0.9% which means they are almost identical. [i was expecting passive to be vastly cheaper than Active funds]. Can this be right?

I am a big supporter of low cost passive index funds, and I am not overly impressed by the performances of the more expensive Active funds.So I am surprised to see that my pension provider says I will be charged almost the same irrespective if the fund is active or passive [depending on the funds I choose of course].
Was I misinformed? Are there any hidden charges that I should be concerned about?

I find this whole matter rather confusing and if someone is able to advise, that would be greatly appreciated.

Many Thanks
Kozan

dunstonh

I spoke to my pension provider and they advised me that the only charge that concerns me is the "Annual Charge" associated to each fund and nothing else!.

most pensions are mono charged. Nothing unusual or justifying an exclamation mark.

Having a review of the funds they provide, for both Active and Passive Funds, on average they range from 0.5% -0.9% which means they are almost identical. [i was expecting passive to be vastly cheaper than Active funds]. Can this be right?

The gap between active and passive is not what it once was. Plus, by the time you include product/platform costs as well, which both suffer to the same extent, then the levels you see are about right.

I am a big supporter of low cost passive index funds, and I am not overly impressed by the performances of the more expensive Active funds.

Of course, it is not as simple as that. Especially since the cross-subsidy that passive used to get from active has gone away.

Not every active is bad and not every passive is good. The key is to finding the best in both. Not focusing on the best on one vs the worst on the other. Do not let bias enter into your decision making.

Was I misinformed? Are there any hidden charges that I should be concerned about?

No.

tacpot12

With a company pension, it is usually the case that the company picks up some of the costs of running the pension, so it is quite possible that the only charges to you are those levied by the funds themselves.

Active Funds will usually charge between 0.4% and 1.5%, Passive funds might charge from 0.05% to 0.5% so your pension provider might have good value active funds and relatively expensive passive funds. Under these circumstances, I would be more inclined to select active funds or at least have some money in an active fund to see how is does compared to the passive funds.