How much are you wasting on pension commissions? Check your charges

Your pension fund can be subject to thousands of pounds in charges that could be avoided by choosing a cheaper pensions provider, according to new research. 

Charges and pension commissions can range from 1% to 2.5% per year, and the difference between these rates can make a huge difference to the size of your pension pot, when applied over the lifetime of your pension. 

The difference can be dramatic, even over a relatively short period such as 20 years.

A man aged 45 with £10,000 in his pension fund today, and saving £100 per month, could expect to retire with a pension worth £80,000 managed by one of the cheaper pensions providers. 

Choosing the wrong pensions provider, however, could eat up £9,000 of that amount, leaving him with just £71,000 in his pot, which in turn would reduce his monthly income in retirement by £42.

 A saver aged 50 with a pension fund of £100,000 and 15 years left until retirement can forfeit up to 42% of his savings in pension charges and commissions, depending on the pension he chooses*. 

Saving in the Friends Provident Individual Pension, and assuming annual investment growth of 7% and a commission of 3%, his fund would have grown to £275,903 by retirement age. Charges equal to 8% would reduce this to £253,000 over the fifteen years of his investment. 

By investing in a Self-Invested Personal Pension product with expensive guarantees to protect against stock market slumps, however, the saver’s fund could have grown to just £161,000 over the same time period. 

*Source: Data researched by pensions website ‘Comparemypension.com’