Mrs D had changed jobs a few times. She also had a period out of work in her early thirties when she was raising two young children. Consequently, there was quite a lot for us to look at when Mrs D became a client a few years prior to retiring.
She had several pensions, with some going back to the 1970s. Her pension funds had been invested in a number of ways – some of it was invested in what’s called ‘with profits’ which can vary in terms of what they deliver. (You’re at risk yielding a nil bonus.) Some of the contracts were old – which can be expensive. And as we looked further, we found a big mix of different management fees attached to each pension.
Using a letter of authority, we wrote to the different providers to find out what they are charging in annual management fees. As you’d imagine, a range of contracts and pensions over a period of years offered up quite a variation. Some were charging in the region of 1.9% or 2.0%. One of the recent ones was at 0.45% – which, to be honest, is more in line with what we’d be looking to pay in fees in the current climate. Our objective became very clear.
Do a quick calculation: The difference between 0.45% and 1.9% of a simple figure like £100k. In a year you could save around £1500. In ten years, £15,000 – and then look at the increased ‘starting figure’ you have which will grow each year. In that second year £99,500 will grow more than £98,100. Extrapolate that out over a few years…
Why pay more in fees and stunt the growth of your pension?
In Mrs D’s case we pulled together, consolidated if you like, six different pensions. Importantly we got everything down to a management fee of 0.45% annually.
Sometimes clients come to us and they’re already on a very good rate in terms of management fees, so we wouldn’t advise any change. However, at least they’ve checked with us, and we’ve done our duty to look at what they’re paying.
It really does pay to keep an eye on those pension management fees.
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