Pension Charges Explained: AMCs, Platform Fees and How They Erode Your Retirement Savings

The power of compound interest works in two directions: it grows your pension savings over time, and it compounds the erosion from pension charges. A difference of just 0.5% per year in charges, sustained over 30 years, can reduce your final pension fund by approximately 10–15%. Over a working lifetime, the cumulative impact of charges is one of the most significant factors determining retirement outcomes — yet it is one of the least scrutinised by savers.

This guide demystifies the world of pension charges: what each charge is, how it is calculated, what consumer protections exist, and how to assess whether the charges you pay are justified.

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The Main Types of Pension Charge

1. Annual Management Charge (AMC)

The AMC is the most widely cited charge — a percentage of the fund's value, deducted daily or monthly and expressed as an annual rate. It covers the cost of managing the fund's investments, administration, and profit margin for the pension provider.

• Typical range for workplace DC pensions: 0.25% to 0.75% (subject to the charge cap for default funds).
• Typical range for SIPPs: 0.25% to 0.75% platform charge, plus the underlying fund charges.
• Passive (index-tracking) funds within pensions: 0.05% to 0.25%.
• Active managed funds within pensions: 0.5% to 1.5% or more.

The AMC is the "headline" charge but often not the only charge. Always look at the Total Expense Ratio (TER) or Ongoing Charge Figure (OCF) for a more complete picture.

2. Ongoing Charges Figure (OCF)

The OCF (previously called the Total Expense Ratio) is the comprehensive annual charge on an investment fund, including the AMC plus other ongoing costs such as audit fees, trustee costs, and ongoing administration. It is the figure used in fund Key Investor Information Documents (KIIDs) and is the best single number for comparing fund costs.

OCF does not include transaction costs (the cost of buying and selling investments within the fund) or performance fees.

3. Transaction Costs

Every time a fund manager buys or sells underlying investments, there are transaction costs: bid-offer spreads, brokerage commissions, and market impact costs. These are not captured in the OCF but can be significant for actively managed funds with high turnover.

Since 2018, MiFID II regulations require fund managers to disclose transaction costs separately. For a diligent saver comparing total costs, these should be added to the OCF.

4. Platform or Pension Wrapper Charge

For SIPPs and personal pensions, the platform charge covers the cost of hosting the pension, maintaining the member account, processing contributions and withdrawals, and providing online access. This is separate from the charges on the underlying funds.

Platform charges are typically structured as:

• Percentage of assets: e.g. 0.25% per year (often tiering down at higher asset levels, e.g. 0.1% above £500,000).
• Fixed annual fee: e.g. £200 per year (more competitive for larger funds; disproportionate for small funds).
• Combination: A base fee plus a percentage.

For large pension pots (above £500,000), fixed-fee platforms become significantly more cost-effective than percentage-based platforms.

5. Adviser Charges

If you use a regulated financial adviser, their charges are typically structured as:

• Initial advice fee: A one-off charge for the advice given at the point of a transaction (setting up a SIPP, reviewing a transfer, retirement planning). Typically 1–2% of assets under advice or a fixed fee (£1,000–£3,000+).
• Ongoing advice fee: An annual charge for continued advice and review. Typically 0.5–1% of assets per year.

Adviser charges are taken from the pension fund or paid directly by the client. Where taken from the pension, they count towards the overall cost and reduce the fund available for investment.

6. Fund Switching Charges

Some pension providers charge a fee each time the member switches between investment funds. These charges are less common in modern platform-based SIPPs but still appear in older, legacy contract-based pensions. Always check the switching charge schedule before making investment changes.

7. Early Exit Penalties

Legacy pension contracts (often unit-linked policies from the 1980s and 1990s) may contain market value adjustments (MVAs) or early exit penalties that reduce the transfer value if the policy is surrendered before a specified date. These charges can be substantial — sometimes 5–20% of the fund value.

Before transferring any legacy pension, request the transfer value quote and check explicitly whether any early exit charge applies.

8. Drawdown Charges

When entering drawdown, some providers charge:

• A fee to designate the fund into drawdown.
• Ongoing drawdown platform charges (may be different from accumulation charges).
• Per-withdrawal charges (e.g. £50 per payment).

For retirees taking regular income withdrawals, per-withdrawal charges are more punitive than annual percentage charges for frequent drawdown. Review the drawdown charge structure before committing.

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The 0.75% Charge Cap

Since 2015, a regulatory charge cap of 0.75% per year applies to the default investment fund in workplace pensions used for auto-enrolment. This covers:

• The fund's OCF.
• Platform charges.
• Any commission or adviser fee paid from the scheme (note: commission is effectively banned for new arrangements under the Retail Distribution Review, but legacy trail commission arrangements within schemes may still exist and must be included in the cap calculation).

The cap does not cover:

• Non-default funds chosen by members who actively direct their own investments.
• SIPPs and personal pensions outside the auto-enrolment regime.
• Adviser fees paid directly by members outside the scheme.
• Transaction costs (a long-standing criticism of the charge cap framework).

The charge cap has meaningfully reduced costs in the auto-enrolment market. Master trusts like NEST, NOW Pensions, and The People's Pension charge well under the cap (often 0.2–0.5% total). Legacy workplace pensions with contracts predating the charge cap era may still carry higher charges — members in such schemes should review whether consolidation is appropriate.

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The Impact of Charges Over Time: Worked Example

To illustrate the compounding effect of charges, consider two pension pots starting with £100,000, growing at 5% gross per year for 20 years, with different charge levels:

Charges	Annual growth (net)	Fund after 20 years
0.25% total	4.75%	£254,000
0.75% total	4.25%	£230,000
1.25% total	3.75%	£209,000
1.75% total	3.25%	£189,000

The difference between the cheapest and the most expensive scenario above is £65,000 — on an initial pot of £100,000. Over longer periods and larger funds, the difference compounds further.

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Evaluating Value for Money

The FCA requires pension providers to assess and demonstrate value for money (VFM) for their schemes. The key VFM criteria:

• Investment performance net of charges.
• Quality of service (administration, online access, member communications).
• Governance quality (trustee oversight, risk management, complaint handling).

A pension that charges 0.5% but delivers strong investment performance and excellent service may represent better value than one charging 0.3% but delivering consistently mediocre returns and poor administration. Charges are important, but they are not the only measure of value.

Questions to Ask About Your Pension's Charges

1. What is the total annual cost, including platform charge, fund OCF, and any adviser fees?
2. Is the default fund passively or actively managed? If active, what is the evidence of performance net of charges over a meaningful period?
3. Are there any legacy charges (initial units, early exit penalties, deferred periods) that would apply on transfer?
4. Does the charge tier down at higher asset levels — and if so, at what thresholds?
5. What is the cost of drawdown, and how are withdrawals charged?

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Legacy Pensions and Higher Charges

Many people hold pension policies taken out in the 1980s, 1990s, or early 2000s under which charges were significantly higher than today's norms. Common features of legacy high-charge pensions:

• Initial units: The first year or two of contributions are invested in "initial units" which carry a higher AMC (sometimes 5–6%) than "accumulation units". These policies effectively imposed a front-end load via a perpetual higher charge on early contributions.
• Bid-offer spread: A built-in spread between the price at which units were purchased and sold — effectively a hidden charge.
• Managed fund charges: Legacy managed funds within older policies often had total charges of 1.5–2% per year.
• Recurring commission: Pre-RDR policies may still pay trail commission to the original adviser (who may no longer be advising the member) from within the fund.

Reviewing and potentially transferring legacy pensions is one of the highest-value exercises for long-term savers. The key check before any transfer is whether any protected benefits (guaranteed annuity rates, protected tax-free cash) would be lost on transfer.

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Charges for Internationally Mobile Clients

For UK expats or non-UK residents holding UK SIPPs:

• SIPP platform charges typically continue regardless of residence.
• Adviser charges may be higher where specialist international tax advice is required.
• QROPS typically carry higher total charges than UK SIPPs (platform + trustee + adviser) — often 1.0–2.0% total per year. This higher charge must be weighed against any tax advantages the QROPS structure provides.
• International pension schemes accessed via offshore bonds or insurance wrappers can carry total charges of 2.0–3.5% per year — significantly higher than transparent platform structures.

For internationally mobile clients, transparency and fee clarity are essential. Always request a full illustration of charges — including any initial charge, annual charge, and any surrender penalties — before committing.

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How Global Investments Can Help

Global Investments provides transparent, institutional-quality pension and investment management for internationally mobile clients:

• Charge audit: We review your existing pension arrangements and produce a clear schedule of total charges, including legacy and hidden charges.
• Value for money analysis: We compare your current arrangement against the market to assess whether better value alternatives exist, accounting for any protected benefits before recommending any transfer.
• Competitive SIPP platform access: We work with leading SIPP platforms that combine competitive charges, broad investment choice, and strong governance — particularly at higher asset levels where tiered pricing is available.
• All-in fee clarity: Global Investments provides written disclosure of all fees — advisory, platform, and fund — so clients know precisely what they are paying in total.
• QROPS charge analysis: For clients evaluating QROPS, we benchmark QROPS total cost against UK SIPP cost and model whether the tax benefits justify the higher charges over the expected investment horizon.

Pension charges, fund terms, and platform pricing change regularly. This guide reflects the position as understood in 2026. Nothing in this guide constitutes financial advice. Seek independent regulated advice before making any transfer or investment decisions. Past performance is not a guide to future performance.