Pension charges: what you actually pay, and what it costs you

The layers of a UK pension charge (provider, fund OCF, transaction costs, adviser) the 0.75% auto-enrolment cap and the 1.5%/1% stakeholder cap, what 0.8 percentage points does to a pot over 25 years, and the guarantees worth more than the saving before you move an expensive old pension.

One lever among many. Optimising your plan shows every lever, which ones apply to you and how they interact.

A pension charge is the one cost in a retirement plan that is certain. Markets may or may not deliver 5% a year; the charge is taken whatever happens, from the whole pot, every year. That is why it compounds like negative growth, and why a difference that sounds trivial on a statement turns into a six-figure number over a working life.

It is also the cost most people cannot state. Ask someone what their pension charges and you will usually get one number, which is almost always one layer of several.

What you are actually paying

A UK pension charge normally has up to four layers, quoted in different places:

The provider or scheme charge: for running the pension itself. Usually a percentage of the pot, sometimes a flat monthly fee, occasionally both. The fund charge: the ongoing charges figure, or OCF, of whatever your money is invested in. A tracker might be 0.1%; an actively managed fund 0.75% or more. Transaction costs: what the fund itself pays to buy and sell holdings. These sit outside the OCF and are disclosed separately, so a fund advertised at 0.2% may really cost more. The adviser charge: if you have an ongoing advice arrangement, commonly around 0.5% a year, taken from the pension.

Add them up and the honest question is not “what does my pension charge?” but “what leaves my pot each year, in pounds, across every layer?”

The caps that already protect you, and where they stop

Three rules cap UK pension charges, and it is worth knowing which one applies to you.

The default fund of a workplace pension used for automatic enrolment is capped at 0.75% a year of funds under management. Commission paid to advisers out of members’ money, and charging leavers more than active members, are both banned in those default funds. A stakeholder pension is capped at 1.5% a year for the first ten years and 1% thereafter. And early exit charges for members aged 55 and over are capped at 1% on existing contracts, and banned outright on contracts started after the rules came in.

The gaps matter more than the caps. The 0.75% cap covers the default arrangement only: choose your own funds inside the same workplace scheme and you step outside it. It does not cover self-invested personal pensions, older personal pensions sold before these rules existed, with-profits policies, or a pension you stopped paying into years ago and have not looked at since. Those last ones are where the expensive pensions usually are.

What the difference actually costs

Take a £200,000 pot left alone for 25 years, growing at 5% a year before charges. Charges come off the growth, so the pot compounds at the rate that is left:

At 0.4% a year the pot reaches £615,633. At the 0.75% auto-enrolment cap it reaches £566,150. At 1.2%, an old personal pension in an actively managed fund with an adviser charge on top is easily there, it reaches £508,117.

The gap between the first and the last is £107,516, on a pot nobody added a penny to. The expensive pension did not lose money. It simply kept a fifth less of the same market return. Contributions over those years make the gap wider, because every pound paid in is charged for the rest of its life too.

Before you move an expensive pension

Cheaper is not automatically better, and this is where people lose real money chasing a charge saving.

Older contracts sometimes carry a guaranteed annuity rate, a promised income far above anything on sale today, which is forfeited on transfer and can be worth many times the charge saving. Some carry protected tax-free cash above the usual 25%, or a protected pension age below the normal minimum; both can be lost. A with-profits policy may apply a market value reduction on the way out, and may carry terminal bonuses you give up. Older contracts can still have exit penalties if you are under 55.

There is also a legal safeguard: if a pension has safeguarded benefits (a guaranteed annuity rate, or defined benefit rights) worth more than £30,000, you must take regulated advice before transferring out. That rule exists because these are exactly the guarantees people give up without realising what they were worth.

How to find your real number

Your annual statement shows charges in pounds and often a “reduction in yield”: how much the charges take off your projected growth each year, which is the figure that matters. The fund factsheet gives the OCF. Your provider must give you an aggregated costs and charges disclosure on request, including the transaction costs that sit outside the OCF. If a provider cannot tell you what you pay in pounds, that is itself an answer.

One piece of arithmetic worth doing: a flat-fee pension beats a percentage charge above a certain pot size, and loses below it. The crossover is just division, and it moves as the pot grows.

How Hundred Summers models charges

The app carries one plan-level charge assumption, and each pension pot and investment account can override it with its own rate. A new plan starts at 0.5% a year, close to the 0.48% the Department for Work and Pensions found to be the average across automatic-enrolment workplace schemes; plans created before 27 September 2026 started at 0% and keep it until their owner changes it. The charge is netted off that holding’s growth every projected year, so it compounds exactly as it does in life, and cash accounts are left alone because they are not charged this way. The Pensions tab shows what each pot’s charges cost over the whole plan, in today’s money, and the Savings & Investments tab does the same for each invested account: pot by pot and account by account, never averaged, because one expensive pot hides inside an average. Change a holding’s rate in Your Facts and every figure in the plan moves with it, so you can see what a cheaper provider would be worth, not as a percentage, but as pounds at retirement.

The fund charges calculator does the same comparison for a single pot, and the pension projection calculator shows what a charge level does to a pot you are still paying into.

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