Pension scheme fees and charges explained

When you pay into a pension, your pension provider usually invests your money so it should grow over time. 

If you have a defined contribution pension, investment growth has a big impact on how much you’ll have when you retire. Your pension provider often needs to pay professionals and other fees to manage and invest your money, so they charge you to help cover these costs.   

If you have a defined benefit pension, the investment performance doesn’t make any difference to you as you’re guaranteed a certain amount by your employer. This means you usually won’t pay any pension scheme charges. 

If you have a defined benefit pension, you usually won’t pay any charges. If you have a defined contribution pension, your pension provider should explain how all their charges work and how much they are.  

Here are typical pension scheme charges you might pay. Your pension provider will usually take any charges out of your pension pot automatically, rather than send you a bill to pay. 

Most schemes have an annual management charge (AMC) to cover the cost of managing and investing your pension. 

You might also pay: 

• an ongoing charge figure – to cover the costs of your provider running an investment fund 
• platform, policy, service or administration charges – to cover the admin costs of running your scheme, like an app so you can choose your own investments. 

These charges are often a fixed percentage of the amount you have in your pension, unless your provider decides to use a set amount – like £10 for the year.  

Example: A 0.75% annual management charge means you’d pay 7.5p a year for every £1 in your pension. This works out at: 

• £75 a year if your pension is worth £10,000 
• £225 a year if your pension is worth £30,000. 

Some providers will reduce their fees if your pension is above a certain amount. For example: 

• 0.75% if your pension is worth less than £30,000, 0.6% if it’s worth more 
• 0.75% on the first £30,000, 0.6% on any amounts above this.   

Some older schemes might also: 

• increase their fees if you stop your contributions 
• have two different annual management charges – often a higher one for money invested at the start of your pension (called initial or capital units) and a lower one for ‘accumulation units’ bought later. 

Most pension providers will use investment funds to try and grow your pension. An investment fund is typically managed by fund managers who decide what to invest in.  

Your pension provider will normally buy and sell a certain number of units in different funds, using money from you and other members. 

As there’s costs involved, you might need to pay:  

• transaction, entry and bid/offer spread fees – to cover the costs of buying and selling units in a fund 
• switching fees – to cover the costs of changing funds. 

If you’ve decided to choose your own investments, you’ll often pay trading fees each time you buy and sell.  

All these fees are often a percentage of the amount you have in your pension, unless your provider decides to use fixed amount – like £5 per trade.  

Some providers might charge for: 

• transferring your money to a new scheme – often called an exit or transfer fee 
• taking money from your pension when you retire. 

If you got financial advice when you set up your pension, you might have agreed to pay your adviser using your pension fund. 

Charges vary between pension providers, so it’s worth comparing your provider’s charges to others on the market. 

For example, if your pension is worth £30,000 and your provider has a 0.75% annual management fee, you’d pay £225 a year. If you switched to a provider charging: 

• 0.5%, you’d pay £150 – saving £75 a year 
• 0.3%, you’d pay £90 – saving £135 a year. 

Workplace and stakeholder pensions (often offered by employers) are usually cheaper than personal pensions you can set up yourself. But pension charges have been reducing over time, so older schemes might have higher charges than new schemes.

Pension scheme charges are important to review as they can reduce how much you’ll have for retirement – even small differences over time can make a big difference. 

But there’s always a risk you might lose out on much more valuable benefits by switching provider. For example, your current provider might offer: 

• a guaranteed retirement income at a higher rate than you could get elsewhere 
• a protected minimum pension age – you might have to wait longer to access your pension if you transferred to a new provider.   

For more information, see our guide about UK pension transfers. 

It’s also worth considering paying for transfer advice. Our tool can help you find a retirement adviser, or see our guide Choosing a financial adviser for more information.