Pension: These are some of the surprising charges you may be unaware of
Pension savings often commence years before a person plans to retire, and spreading out payments allows the pot to have a chance to grow. This can be beneficial for those who are looking to retire with a substantial amount of money to achieve retirement dreams, goals and aspirations. However, with saving for a pension comes added charges which are important to keep aware of throughout one’s lifetime.
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These charges are likely to have different effects, depending on the way in which a person chooses to save.
Nonetheless, charges are to be found almost everywhere, and it is vital to understand how they could affect a person’s individual savings.
Express.co.uk spoke to Peter Glancy, Head of Policy, Pensions and Investment at Scottish Widows, to gain insight into pension charges.
Mr Glancy provided important information on charges people may miss and gave insight into the benefits and drawbacks of certain arrangements.
He said: “There are a few rules of thumb. Older pension products, which tend to be 20 or more years old, tend to have more charges than modern products.
“If you have a pension pot or combined pots less than a quarter of a million pounds, the charges in a workplace pension are probably going to be lower than that in a personal pension or Self-Invested Personal Pension (SIPP).
“If you have a pot bigger than that, then charging structures could mean you are getting better value for money if consolidating.
“But if you are consolidating, you need to be very careful. Are you moving your pots of money from places where the costs are low, to where they are high?”
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Mr Glancy highlighted that for those who get this the wrong way around there could be significant and dire consequences for pension saving.
But he also highlighted it was vital for savers to check their charges before switching out of an arrangement.
This is because newer pension products do not always mean better deals for savers.
He added: “It is important to look at the charges before you switch. The other important thing is that some of those older products, although the charges are higher, they have valuable guarantees built in that aren’t available in more modern products.
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“For example, they might have an income guarantee – which could guarantee you get 1/10th of your pot as an annual income. If you have a notional pot of £100,000, this would get you £10,000 a year.
“But if you transferred out of that into a more modern product, at the moment you would expect to get 1/25th of that pot as your annual income – as that is the current annuity rate.
“It might look attractive that some of the charges are lower, but this is largely irrelevant if there is a growth or income guarantee that applies.
“People need to be careful before making a snap decision, which could eradicate some of those valuable benefits.”
The Pension Advisory Service has also outlined specific charges savers may face when putting away money for retirement.
Annual management charges cover the cost of a provider running and administering a pension scheme, as well as investing contributions in the pot.
As Mr Glancy highlighted, transferring a pension pot could also create charges, and so it is advised people take financial advice before doing so.
Finally, stopping contributions to a pension pot could also create charges, with older schemes potentially increasing the cost of looking after a person’s pension in the future.
Generally, it is recommended Britons look towards pension advisors before making decisions on retirement.
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