Do pension fees matter? How a 1% charge compares with 0.5% over a working life

The short answer: Yes. Small fees add up over decades. In our example, £250 a month for 41 years, growing 5% a year before fees, reaches about £345,000 with a 0.5% yearly fee but about £305,000 with 1%. That's around £40,500 less. Default funds in auto-enrolment workplace pensions have charges capped at 0.75%.

Do pension fees really make a difference?

Yes. A fee of 1% sounds tiny, a bit like a dripping tap. But it comes out of your whole pot every year, for decades. And money taken in fees isn't there to grow either. So the gap between two fees keeps getting wider as your pot grows.

MoneyHelper puts it simply: charges can reduce how much you'll have for retirement, and even small differences can make a big difference over time.

To show how much, we ran the numbers ourselves. Here's the setup:

• Paying in: £250 at the end of every month for 41 years, from age 25 to 66. That's £123,000 in total.

• Growth: 5% a year before fees. This is a round number we picked for the example, not a forecast.

• Fees: taken off the yearly growth rate, so a 1% fee leaves 4% a year. We turn that into the matching monthly rate and add growth every month.

• Kept simple: the £250 stays the same every month, and there's no inflation and no other charges.

Illustrative only, not a prediction. Our own calculation: £250 a month for 41 years, 5% yearly growth before fees, fee taken off the yearly growth rate, growth added monthly. Real growth isn't guaranteed and will be different. Figures rounded to the nearest £1,000.

A few things jump out:

• Going from 0.5% to 1% leaves about £40,500 less at 66.

• At 1.5%, nearly a third of what the pot could have been goes on fees.

• Even 0.3% costs about £29,000 compared with no fee at all.

Most providers take their fee out of your pot rather than off the growth rate. If we work it that way, taking a twelfth of the yearly fee from the pot each month, the gap between 0.5% and 1% comes out a little bigger, at about £42,000. So our table is, if anything, on the cautious side.

Fees aren't the only thing that matters, though. MoneyHelper explains that what you get from a personal pension depends on how much goes in, how the investments do, the fees and how you take the money out.

Capital at risk. The value of your pension can go down as well as up, and you may get back less than you pay in.

What fees might you pay on a pension?

Most pensions where you build up your own pot (defined contribution pensions) charge fees for investing and managing your money. If you have a defined benefit pension, the kind that promises a set income, you usually won't pay any charges.

MoneyHelper lists the usual ones:

• An annual management charge (AMC): a yearly fee for running and investing your pension.

• An ongoing charge figure: the cost of running the investment funds you're in.

• Platform or admin charges: for things like the app or website you use to manage your pot.

• Dealing fees: to buy, sell or switch funds, or a fee per trade if you pick your own investments.

• One-off fees: for transferring out, taking money at retirement, or paying an adviser from your pot.

Many are a percentage of your pot, but some providers charge a flat amount instead. GOV.UK says the provider usually takes a small percentage as a management fee, so it's worth asking them how much.

Some providers charge less on bigger pots, for example 0.75% under £30,000 and 0.6% above. And some older schemes may increase their fees if you stop paying in, which is worth knowing if you've left an old job.

Is there a cap on pension charges?

Yes, for some pensions. The default fund of a workplace pension your employer uses for auto-enrolment has charges capped at 0.75% of your pot each year. The Department for Work and Pensions' charge cap guidance says the cap has applied since 6 April 2015. The rules are in The Occupational Pension Schemes (Charges and Governance) Regulations 2015.

A few things to know about the cap:

1. It covers the default fund, the one you're put in if you don't choose. If you pick a different fund, the cap doesn't apply to it.

2. The scheme can charge in other ways, such as a slice of each payment in plus a yearly percentage, as long as the total stays within the cap.

3. Transaction costs (the cost of buying and selling the investments inside the fund) sit outside the cap.

Stakeholder pensions have their own limits. MoneyHelper says they come with capped charges, lower minimum payments and free transfers. Under the Stakeholder Pension Schemes Regulations 2000, the cap is 1.5% a year for your first 10 years and 1% after that if you joined on or after 6 April 2005. If you joined before then, it's 1% a year.

Are SIPP fees capped?

No. Which? says there's no cap on the fees charged by self-invested personal pensions (SIPPs). Dealing fees and currency exchange fees aren't capped either, but under FCA rules providers must tell you what they are.

That doesn't make every SIPP expensive. It just means the price varies a lot, so the total cost is worth comparing. A SIPP can have a platform fee, fund charges and a fee every time you trade. If you're weighing one up, our guide to moving a pension into a SIPP covers the costs to look for.

What is a good annual charge for a pension?

There's no official "good" or "high" figure. MoneyHelper doesn't set one. Instead, it says charges vary between pension providers, so it's worth comparing yours with others on the market.

What you can do is hold your charge up against a few official reference points:

The averages come from the Department for Work and Pensions' pension charges survey, published in January 2021. It's the latest one DWP has published. The 0.48% figure is for members of qualifying bundled schemes, the kind used for auto-enrolment. These are reference points, not a rule.

So if you're paying 1% a year, that's above the cap on auto-enrolment default funds and about double the average DWP found. That doesn't automatically make it bad value, but it's worth asking what you get for it.

If you'd like a rougher rule of thumb, consumer group Which? suggests combined platform and fund charges of 0.45% or less tend to be better value, while anything above 0.6% is starting to get pricey.

A few more things to bear in mind:

• Pot size changes the sums. Which? says percentage fees are usually cheaper for smaller pots, while a flat yearly fee often works out better above £50,000.

• Workplace pensions are often cheaper. MoneyHelper says workplace and stakeholder pensions are usually cheaper than personal pensions you set up yourself. It adds that charges have been falling, so older schemes might cost more.

• Value isn't just price. Regulators are moving towards judging workplace pensions on more than charges. In its January 2026 consultation, the FCA says it's working towards 2028 for the first value for money assessments.

How does a small fee grow into a big gap?

Here's a simple one, with made-up round numbers. Say you have a £20,000 pot.

• At 1% a year, you'd pay about £200 in the first year.

• At 0.5% a year, you'd pay about £100.

That's £100 a year, which might not sound like much. But the fee is charged on the whole pot every year, so as your pot grows, so does the fee. In our example, a 1% fee costs about £13 in the first year but about £2,900 in the last. And the money taken in fees misses out on growth too. That's how a small difference turns into tens of thousands of pounds over 41 years, as our table shows.

MoneyHelper's own example uses a £30,000 pot. At 0.75% you'd pay £225 a year. At 0.5% you'd pay £150, and at 0.3% you'd pay £90.

To see how different amounts going in might grow, try our flexible pension calculator.

How do I find out what my pension is charging me?

Your provider has to explain its charges, so the information is out there. It's just not always on the front page. Here's where to look:

1. Log in to your pension's website or app. Which? says charges are usually listed in a "Key Features" document.

2. Check your yearly statement. If you're over 50, your provider's "wake-up pack" should also help.

3. Ask your provider. Which? suggests asking for one overview of all your charges, so you can see the total.

4. If you're already taking money out (drawdown), your provider must tell you each year what you've paid in charges, in pounds and pence.

Lost track of an old workplace pension? The GOV.UK pension tracing service can help you find the scheme's contact details, though it won't tell you the value. Our beginner's guide to pension consolidation explains what to think about if you'd like fewer pots to keep an eye on.

What should you check before moving to a cheaper pension?

Lower fees can be a good reason to move, but it's worth checking what you'd give up first. MoneyHelper warns you could lose more valuable benefits by switching, such as:

• a guaranteed income rate (for example a guaranteed annuity rate) that's better than you'd get elsewhere

• a protected pension age, letting you take money out earlier than the usual minimum age.

Some providers also charge an exit or transfer fee when you leave, so check that too.

If you have a workplace pension, your employer's payments in are another thing to weigh up. Everyone's situation is different, so we can't say what's right for you. MoneyHelper's free pension specialists can talk it through, and if you're 50 or over you can get a free Pension Wise appointment. Our guide to choosing an individual pension plan also covers what to compare.

Still got questions?

Is 1% a high pension charge? There's no official line for "high". But 1% is above the 0.75% cap on auto-enrolment default funds, and about double the 0.48% average the DWP found in its 2020 survey.

What is the average pension charge in the UK? The DWP's 2020 survey found an average of 0.48% for members of qualifying bundled schemes used for auto-enrolment, and 0.53% for other workplace pensions.

Do defined benefit pensions have fees? You usually won't pay charges on a defined benefit pension, because your income is set by the scheme's rules rather than by how investments do.

Are pension fees taken from my pot or billed to me? They're usually taken from your pot automatically, so you won't get a bill. That's why they're easy to miss.

Does the 0.75% cap apply if I pick my own fund? Usually not. The cap covers the default fund in a workplace pension used for auto-enrolment, not funds you choose yourself.

Is it worth paying more for a pension? Sometimes a higher fee pays for more fund choice or extra features. What matters is whether you use them and what the total cost is.