How To Get A Bigger Pension
Published / Last Updated on 13/05/2021
Get £100,000 plus Bigger Pension Fund - How To Get A Bigger Pension
How to get £165,000 bigger pension fund just by taking some few simple actions.
Before we start looking at charges, you must understand how financial advice is supposedly paid for by fees.
Where No Advice Is Given (offered direct by many banks, insurance companies etc) = FULL COMMISSION CAN STILL BE PAID (usually paid for by higher charges deduction from the pension fund)
Where Financial Advice Is Given - a fee must be charged (not commission). The adviser can either
- Charge you a fee in round £ numbers and invoice you - meaning no additionals charges are made to basic pension fund charges
- Many advisers still charge percentages (commissions in all but another word) i.e. usually paid for by higher charges deducted from the pension fund - this is similar to how many non-advised services offered by banks/insurers work (for example this could be 3% unfront + 0.5% pa)
It’s probably a good point to explain how charges work on your pension funds and offer some examples of charges for points 1 and 2 above. Most pension funds have an annual management charge, this is the charge that the pensions company levies on your investment funds for them to manage your money. Under UK pension law at the present for things like stakeholder pensions, the maximum yearly management charge that a pensions company can charge you is 1.5% per annum. For other pensions, such as Workplace pension it is 0.75% pa.
When you start to add the hidden trail fee mentioned in point 2. above of 0.5%pa, you could be looking at charge deductions of 2% pa from your pension fund, before you get any growth!
Although this doesn’t seem that much if you change the numbers and instead of having £50.00 a month in your pension, you have £100,000 in your pension fund, then 1.5% all of a sudden is a lot of money. 1.5% of £100,000 pension fund is £1,500 per annum in charges, in charges alone and then you’ve got to try and get some growth and if you don’t get any and you’re still being charged 1.5%, then clearly your pension fund is going to go down in value quite quickly. 2% pa i.e. £2,000 per year looks even worse still.
Our guidance to you is to look at removing those hidden charges by paying your adviser a fee and stopping any hidden ongoing trail fees. If we take that example we gave you earlier, if you’ve got £100,000 in your pension fund and you paid a fee for the advice to set up your pension fund, then you can get management charges as low as about 0.4% a year. 0.4% per year compared to 1.5% or 2% per year? Is that a big deal for my pension?
Again that does that seem a lot, but compared to 1.5% per year in charges on a higher charges based pension, for a £100,000 pension fund this amounts to £1,500 a year of your money disappearing in charges versus 0.4% on a pure fee and nil commission pension plan which would only a be charge of £400 a year, meaning you save £1,100 a year in charges alone just by paying your adviser a fee to run your pension scheme and get you a nil commission pension.
Below are some figures that will show you the dramatic change that you can make on your pension fund at aged 35, at age 45 and 55 if you retire at 65.
£100,000 Pension Fund, Projected Funds at age 65:
- Age Now Commission Basis Fee Basis
- 35 £507,000 £675,000
- 45 £295,000 £357,000
- 55 £171,000 £189,000
Based on £100,000 pension transfer to Aviva Personal Pension Managed Fund at 7% pa growth. Commission 4.60% +0.5% pa of fund value versus our Fee only, NIL Commission terms.
The difference in the fund value for somebody’s pension fund at age 65 whose paid a fee and had their annual charges reduced on their pension for that 35 year old is £165,000 and it doesn’t just stop there.
If you’re a 20 year old and want to save £100 a month in a pension plan, by saving that £100 per a month but let’s say we charge £400 to arrange a pension fund for a regular premium pension of £100 a month. That might seem a lot but when you look at the lower charges that a fee based pension gets that will give a 20 year old a £65,000 bigger pension just for paying an arrangement fee of £400.
In the case of a pension transfer where you’ve got let’s say £100,000 we would charge about £1,000 to get a pension fund £165,000 bigger with exactly the same insurance company, in exactly the same pension funds all because you changed the basis on how you’re paying for your pension advice.