Pension Fees and Management Charges Explained – Are you paying too much?.

If you have a pension in Ireland, there are a number of fees and charges that you must pay for a variety of services, such as running and managing your pension fund. These fees can include:

Let’s explore the various pension charges to find out what you’re paying for, how much they can cost and what you should do to avoid overpaying.

Annual management charges, also known as fund management charges, are fees that you pay for the professional management of your pension fund, and in Ireland, these charges usually also include administration fees.

A percentage of this charge covers the cost of the fund manager, who makes investment decisions on your behalf, aiming to achieve the goals of your pension fund. These aims may be to drive maximum growth, focus on stability or maintain a steady income.

Management charges typically range from 0.5% to 1.5% depending on your pension fund. You should bear in mind that even seemingly small differences in fees can make a huge dent in your savings over time. 

This is because management charges are deducted from your total savings, and the compounding effect which allows your pension to grow over time also affects how much you will pay in fees. For example, if you have €100,000 in your pension pot, €1,000 will be deducted automatically annually.

NPH Top Tip ⭐

Pension management charges tend to have a lesser impact on those who are starting their pension journey, due to the compounding effect. So, if you have decades to go until retirement, you should focus on investing in high equity funds with high growth potential. 

Specialist funds, which focus on a particular asset class such as technology equities or property, usually have higher fees. But many of these high equity funds also have a high growth potential, and this should be the focus in the early stages of your investment journey.

Those who are nearing retirement, with a healthy pension pot in place, may want to de-risk, potentially choosing a fund with lower fees and more stability. Check out our dedicated pension guides for people in their 50s and 60s to learn more.

As well as pension management charges, there are a number of other fees that you may need to take into account when reviewing your pension and whether you are overpaying. Discussing all of the fees associated with your pension with a financial advisor is the best course of action to ensure that you receive the highest growth without charges eating into your pension pot.

Allocation charges are fees that are deducted from each contribution, and are usually under 5%. This charge refers to the allocation of your contribution that is used to buy units in a pension. For example, an allocation rate of 98% means that for every €100 you invest, €98 is used to buy units. As is the case with management charges, small differences in allocation charges can add up over many years.

Setup fees are one-off fees incurred for setting up a new pension. These fees can vary depending on the provider, and can include advice fees. Some PRSAs offer zero setup fees.

These charges may apply when you move your investment to another pension fund before a set period has lapsed, which may be 3 or 5 years. Not all providers charge exit penalties, and it depends on factors such as your contract terms, provider, and pension product. For example, Aviva does not charge you for switching between funds.

Broker or advisor fees are another vital factor to consider, and are often overlooked. Like other fees, these can increase over time depending on the way that the fees are charged. Some brokers charge a fee related to the value of your fund, and many charge a flat annual rate.

Pension fees can differ widely depending on your pension product, provider, and pension fund. Some fees, like management charges, are taken as a percentage of the total value of your pension fund, while others are typically charged as a flat rate. The more you have in retirement savings, the more you are likely to pay in pension fees.

Note: These figures are estimates designed to give a general impression of how much each may cost, and actual fees may vary depending on your provider and pension product.

While fund options and performance metrics should be key to choosing a pension fund, fees are another key element to ensuring you are retaining the maximum amount for your retirement. 

Comparing the performance, fees and charges of Ireland’s leading pension providers: Aviva, Zurich, Irish Life, Standard Life, New Ireland and Acorn Life with your financial advisor will help you decide which provider and fund is best for you given your age and how much you wish to contribute. Here are some top tips for choosing a pension with the lowest fees in Ireland, to avoid paying more than you need to.

1. Look for low-cost PRSAs to avoid unnecessary set up fees.
2. Compare Annual Management Fees from Ireland’s leading providers. A good place to start is by comparing pension fees from Zurich, Irish Life, Aviva, New Ireland, Standard Life and Acorn Life.
3. Consider switching fees carefully. Select a provider with no exit fees if you plan on changing your pension fund regularly.
4. Discuss other hidden charges with a financial advisor in a pension consultation to avoid any unwanted surprises.

Fees and charges can make a huge difference to your pension pot due to compounding, especially over many years. All fees that are charged annually and on the total value of your savings, will increase over time (unless you are in an underperforming pension fund that is losing value). 

Essentially the more growth your pension fund sees, the more you pay in fees. These are usually small percentages, which don’t make much of a dent in your pension pot in the early days. 0.5% of €3,000 is only €15, whereas 0.5% of €300,000 is €1,500. 

When your pension savings grow, so too does the importance of monitoring the various fees that you are paying, and whether there are better options out there. 

If your pension reaches €300,000, there is a €3,000 difference per year between a 0.5% management charge and a 1.5% charge. Over 5 years, this would work out at around €15,000 – which is a hefty sum and a reminder that performance and volatility are not the only things to monitor.

Speaking to a financial advisor about the fees that you are paying and the other options on the market could save you tens of thousands of euro to enjoy retirement to the full. Get started on your journey below.