Warning over 'hidden' charges that can cost your pension £37,000

New research has highlighted that a staggering one in two Britons are 'oblivious' to the fact they're forking out annual fees for pension management, which can accumulate to a hefty sum over time.

Moreover, even among those who recognise such charges exist, half are in the dark about the total cost they incur. Moneyfarm's investigation points to these fees as a considerable blind spot financially for most individuals.

The firm pointed out that the average person is coughing up annual fees of 2.5 per cent, a figure Moneyfarm deems excessively high. They've issued a warning that these ongoing costs can significantly eat into the final retirement savings, reports the Express.

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Carina Chambers, Pensions Technical Expert at Moneyfarm, commented: "We would consider annual pension fees of around 1 per cent to be a reasonable amount."

She added: "A seemingly small amount in fees can lead to significant shortfalls over the long term." Highlighting the impact of fees on long-term savings, she explained: "The difference between 2.5 per cent and 1 per cent doesn't seem much, but when it comes to pensions, we are talking about a large amount of money which is invested over a long period of time."

Chambers warned: "That apparently small percentage difference therefore compounds, so the losses we are talking about can be very significant." To illustrate her point, she examined the case of a 40-year-old with a £40,000 pension fund.

If they plan to retire and start drawing from their pension at 67, assuming a 5 per cent annual growth and a 2.5 per cent annual pension management charge, their pension pot could reach £78,000 without any additional contributions.

In contrast, the same pension pot with just a 1 per cent annual management charge could be worth a whopping £115,000. That seemingly small 1.5 per cent difference could translate into an extra £37,000 in your pension - a substantial 48 per cent increase.

Typically, pensions come with three main costs; fund fees, platform fees, and management fees. She commented: "Frustratingly, these charges are often hidden in the small print or in footnotes of the contract."

"Because of this, you might be paying fees that you're not even aware of, which could be shrinking your pension pot."

The company revealed that a staggering 39 per cent of people find pensions one of the most financially confusing aspects of life, with a massive 78 per cent feeling overwhelmed by what they should do for the best.

Miss Chambers continued: "We hear anecdotally, and it's supported by this survey, that people struggle to understand what charges they're paying on a pension scheme even when they have the statement right in front of them."

"These charges can be very hidden. It may seem easier to think 'why bother finding out', but it's crucial not to bury your head in the sand."