Pension fees, the twenty-year cost most projections quietly omit

A fee of one and a half percent a year does not sound like much. Set against a portfolio that aspires to grow several percent a year, it reads as a rounding error. It is not. A fee is charged on the whole balance every year, including the gains, and it compounds in reverse: every pound taken in charges is also every pound that is no longer there to grow in the years that follow.

The figures that matter are the difference, not the headline. The gap between an all-in cost of around one and a half percent and one of under half a percent is the part of your return that quietly leaves the building. Over a few years it is modest. Over a retirement horizon of two or three decades, the compounding turns it into a large fraction of the pot.

Most illustrations you are shown net the fee out of the assumed growth rate and present a single smooth line. The line looks healthy because the charge has been folded into an optimistic return assumption rather than displayed as a cost in its own right. The effect is real, but it has been made invisible.

A more honest projection runs the same portfolio twice, once at the lower all-in cost and once at the higher one, and shows both lines on the same chart. The space between the two lines at the end is the twenty-year cost of the fee. It is usually larger than people expect, and seeing it drawn out tends to change the decision.

The all-in cost is not the platform fee alone, nor the fund charge alone, nor the advice cost alone. It is the sum of all of them. A structure can advertise a low platform fee while the underlying funds and any product layer push the total well past it. The only figure worth comparing between two arrangements is the total ongoing cost, every layer added together, expressed as a single percentage.

Ask for that number in writing. If it cannot be produced as a single figure, that is itself informative, because it usually means the layers have not been added up, or that adding them up produces a number nobody wanted to say out loud.

The point is not that the cheapest option always wins. A structure that costs more can be worth it if it does something the cheaper one cannot, a genuine planning need, a tax wrapper that earns its keep, an investment approach you could not run yourself. The point is that the cost should be visible and justified, not buried.

Where I am paid through commission on a product and an ongoing fee on the assets I manage, that cost belongs on the same page as every other layer, set out before you decide. A fee is defensible when you can see it and see what it buys. It is indefensible only when it is hidden.

This article explains how annual fees compound over time in general terms. The percentages used are illustrative, not a quote, and the impact on any particular pot depends on its size, the time horizon, and the actual charges that apply.

The UK pension transfer service and the retirement planning service describe how the practice sets out the all-in cost of any arrangement before you commit. For a conversation about your own pension and what it is costing you, book a consultation.