No, you are not paying 3% in charges for your pension

I have set up Google alerts for a number of different keywords, so every morning I get an email with articles linked to that keyword. One of those keywords is pensions and last Monday I got an alert to an article saying that six in every ten euro in a pension pot being consumed by charges. This was quite alarming so I clicked onto the article to read that fees of 3% are charged on pensions!

Having worked in the pensions industry for over 20 years, I have seen the full range of pension charges, from the 60% initial commission (just before my time) to Bid/Offer spreads and high annual management fees. Over that time, I have seen charges come down, not up, so I was interested to learn more and see the data behind this 3% figure. Unfortunately, there was no link to the paper in the article and the author is anonymous. A subscriber on found it and provided me with a link to it.

And I entered an 81 page Wonderland of inaccuracies, ill informed rants and bluster. The information I was looking for was the data behind the 3% claim and it took to page 17 to find the reference to fees where the author broke down charges as follows:

  1. Fund Manager: 1%
  2. Service Providers (Platform, Trustee, Custodian): 1.25%
  3. Advisor: 1%

This type of structure refers to a Self Administered Pension Scheme (SSAS), something that we set up for a lot of clients. However, our structure is:

  1. Fund Manager: 0.2%
  2. Service Providers (Platform, Trustee, Custodian): 0.4%
  3. Advisor: 0.5%

That is almost 1/3 of the cost that the paper quotes and I am confident that none of our clients are being charged anywhere near 3%. Now, I know that not everyone has the same charging structure as us, so I still wanted to see the basis of their 3% charge. A reference is made to 9 year old Pensions Authority paper, which referred to a charge of 2.18%. This paper is 290 pages long but thanks to the Find function in Adobe, I was able to find the 2.18% quickly enough.

The paper refers to the Reduction in Yield (RIY) of 2.18% in a pension that is charged at the maximum commission rate. For those of you who remember the introduction of the PRIIPS legislation in 2018, it lead to a lot of confusion. In calculating the RIY, assumptions are used on what the charges will be in the future and not what the actual past charges actually were. It assumes the highest possible charges that can be levied on a product and includes the cost of early exit penalties which will not apply to most as investors just wait until the penalty period has expired before moving their pension.

We are still missing 0.82% in charges. Where has that come from? It has come from a Maynooth University paper called “A note on pension fund charges in Ireland“, which was published 8 years ago. As the title suggests, this is more of a note than a paper and at 9 pages long, I didn’t have to use the Find function. In the note they “argue that the report understates costs of pension provision”. But nowhere in the note do they come up with an actual amount of how much the charges are understated.

So there we are. We have the Labour Party all over the media telling everyone that they are being charged 3% per annum for their pensions, using old, inflated data and some embellishment to give them a nice round number.

I am not saying that pension charges shouldn’t be more transparent, the definitely should and I have said so on many occasions.  But lets not make up numbers to create publicity.


Steven Barrett

22 April 2021