Pension Scheme Charges
What charges apply to workplace pensions? Understand annual management charges and how they affect pension pots.
Last updated: 30 January 2025
Understanding pension charges helps workers and employers make informed choices.
Charge Cap
Legal Maximum
| Applies To | Default Funds |
|---|---|
| Maximum AMC | 0.75% |
| Per year | Of fund value |
| For defaults | Only |
What It Means
| Position | Detail |
|---|---|
| Scheme cannot | Charge more |
| For default | Investment |
| Protection | For members |
Doesn't Cover
| Not Capped | Detail |
|---|---|
| Non-default funds | Choice funds |
| Transaction costs | Some |
| Other charges | May apply |
Types of Charges
Annual Management Charge (AMC)
| What It Is | Detail |
|---|---|
| Percentage | Of fund |
| Charged annually | Deducted |
| Main charge | Usually |
| Example | 0.3% of pot |
Contribution Charge
| What It Is | Detail |
|---|---|
| Per contribution | Amount deducted |
| Percentage or flat | Fee |
| Example | 1.8% (NEST) |
| When paid | Each contribution |
Other Potential Charges
| Charge Type | Description |
|---|---|
| Transaction costs | Buying/selling investments |
| Exit charges | Banned for most |
| Switching fees | Changing funds |
| Administration | Some schemes |
Comparing Providers
Common Charges
| Provider | AMC | Contribution |
|---|---|---|
| NEST | 0.3% | 1.8% (£1.80/£100) |
| People's Pension | 0.5% | None |
| NOW: Pensions | 0.3% | £1.50 |
Which Is Cheaper?
| Depends On | Factor |
|---|---|
| Pot size | Larger = AMC matters more |
| Contributions | Frequency and size |
| Time | How long invested |
Impact of Charges
Over Time
| If £100k Pot | 30 Years |
|---|---|
| 0.3% AMC | Keeps more |
| 0.75% AMC | Loses more |
| Difference | Significant |
Example Calculation
| Element | 0.3% AMC | 0.75% AMC |
|---|---|---|
| Starting pot | £100,000 | £100,000 |
| After 30 years | Higher | Lower |
| Difference | £10,000s | Lost to charges |
Compound Effect
| Year | 0.3% Deducted | 0.75% Deducted |
|---|---|---|
| 1 | £300 | £750 |
| 10 | £3,000+ | £7,500+ |
| 30 | Much more | Much more |
For Employees
What to Consider
| Factor | Impact |
|---|---|
| Charges matter | Over time |
| Default capped | At 0.75% |
| Compare | If choice exists |
| Long-term | View important |
Cannot Choose Scheme
| Position | Detail |
|---|---|
| Employer chooses | The scheme |
| But can ask | About charges |
| If concerned | Raise with employer |
For Employers
Choosing Low Charges
| Benefit | Detail |
|---|---|
| Better for staff | More in pots |
| Duty of care | Considered |
| No extra cost | To employer |
| Staff appreciation | Valued |
Comparing Total Costs
| Look At | All Charges |
|---|---|
| AMC | Annual percentage |
| Contribution charges | Per payment |
| Any other fees | Hidden charges |
| Total cost | Over time |
NEST Charges
Structure
| Charge | Rate |
|---|---|
| AMC | 0.3% |
| Contribution charge | 1.8% |
| Combined | Effect |
Example
| Contribution | £100 | | Contribution charge | £1.80 | | Into pot | £98.20 | | Then AMC | 0.3% of pot |
Over Time
| Initially | Contribution charge noticeable | | Long-term | AMC dominates | | Competitive | Overall |
Transaction Costs
What They Are
| Cost | Detail |
|---|---|
| Buying investments | Trading costs |
| Selling investments | Same |
| Not in AMC | Separate |
| Can be significant | For active funds |
Disclosure
| Position | Detail |
|---|---|
| Must be disclosed | By schemes |
| Look for | Total charges |
| Compare | All costs |
Banned Charges
Exit Charges
| Position | Detail |
|---|---|
| Banned | For most members |
| Cannot charge | To leave scheme |
| Transfer | Should be free |
Commission
| Position | Detail |
|---|---|
| Banned | For auto-enrolment |
| No adviser | Commission |
| Member protection | Built in |
Member Information
What Schemes Must Tell
| Disclose | Information |
|---|---|
| Charges | All of them |
| Impact | On pot |
| Projections | Future values |
| Comparison | Possible |
Annual Statements
| Include | Detail |
|---|---|
| Charges taken | Amount |
| Effect | On pot |
| Projection | Future value |
Summary
Key Points
| Element | Detail |
|---|---|
| Cap | 0.75% AMC (defaults) |
| Compare | All charges |
| Impact | Significant over time |
| Lower | Generally better |
Common Charges
| Type | Examples |
|---|---|
| AMC | 0.3% - 0.75% |
| Contribution | 0% - 1.8% |
| Transaction | Varies |
Related answers
Auto-Enrolment Overview
What is workplace pension auto-enrolment? Understand the UK's automatic enrolment system and employer duties for pension contributions.
Choosing a Pension Provider
How do you choose a workplace pension provider? Compare options for auto-enrolment including NEST and other providers.
Qualifying Pension Scheme
What is a qualifying pension scheme? Understand the requirements for auto-enrolment pension schemes.
Frequently Asked Questions
- What is the charge cap for auto-enrolment pensions?
- Default funds used for auto-enrolment have a charge cap of 0.75% annual management charge (AMC). This means the scheme can charge no more than 0.75% of the fund value per year for default investment options.
- How do pension charges affect my pot?
- Charges are deducted from your fund each year. Over a career, even small differences compound significantly. A 1% charge vs 0.5% charge could mean tens of thousands of pounds difference by retirement.
- Are there other charges besides the AMC?
- Some schemes charge transaction costs, contribution charges (like NEST's 1.8%), or other fees. When comparing schemes, look at total charges not just the headline AMC. The charge cap only covers the AMC on defaults.