The extra charges of workplace pensions

  •  By
  •  Lee Mannion

We’ve pulled together an overview of some extra charges to watch out for when choosing a pension provider.

Here at Penfold, we hate extra charges. That’s why we have one fair, transparent annual management fee that covers absolutely everything within our service to manage your pension. We don’t charge employers any fees to use Penfold and we only receive fees from your employees, based on the value of their pensions.

For employers, there are no fixed fees, extra fund management fees, account fees, and no adviser fees. Our annual management fee on savers pots covers everything. Similarly, we don’t charge employees extra admin charges, contribution charges, or to switch funds.

Most pension providers charge an annual management charge (AMC), but some also add extra charges on top, making it challenging to work out how much you will be paying. We’ve identified these in the table below.

The extra charges of UK pension providers

Recent increases to charges

Smart Pension added a £15 per month employer charge on 1st December 2021, explaining they were introducing the charge "to improve the service we offer” and that it would “allow us to invest in our platform so that we can improve our service, as well as introduce new features and products to make your and your clients' lives easier."  The employer charge has recently risen to £22 per month.

The impact of extra charges

There are 5.5m businesses classed as SMEs (small to medium sized enterprises) in the UK – 99% of all businesses according to the British government. The vast majority of them have less than 50 employees.

Since auto-enrolment was introduced in 2012, it’s mandatory for all of those small businesses to provide a workplace pension to their employees and contribute a minimum of 3% of their salaries into it. This usually makes it their most expensive workplace benefit.

The employer charges (such as the £36 monthly charge from NOW) levied by some pension providers are an extra expense, but it’s a cost that can be avoided simply by switching providers, which the better pension companies out there make simple. Here's how.

Extra charges also have an impact on employees of course. Pension provider Nest charges individuals to put money into their pension, for example. If an employee is contributing £200 a month into their Nest pension, the 1.8% charge means they are immediately losing £3.60 each time they contribute.

Over a year, this adds up to £43.20, and over a decade, it’s £432 – and that’s before you even consider the compound growth that could be lost on that money.

NOW pension and Smart both charge users £1.75 per month as a ‘member administration charge’ on top of the AMC. For low earners struggling to save into their pension, this could prove a significant hit. For someone saving £300 into their pension annually, 7% of their savings is going to pay these monthly fees.

Comparing fees

Fees are just one aspect of myriad considerations when figuring out the merits of a new provider. With a future savings crisis looming it’s crucial to make it both easy and attractive for employees to engage with their pension. Both the choice and performance of funds are important, and the quality of customer service is key. If you’re in the market for a new workplace pension, we’ve put together a list of the things you should consider here.

The extra charges make it challenging for employers to compare the costs of pensions. To help with this, we’ve built a comparison of different providers here. And for more information about the one simple fee (the AMC) that Penfold charges, click here.

Lee Mannion

Lee Mannion