Three things determine how much you will get back from your pensions and investments; how much you put in, the investment returns you earn and the charges you pay.
Investment returns are the least certain, and whilst we can choose what we invest in, we don’t really know how those investments will perform.
But we can exert much more control over how much we save and invest, and what we pay in charges.
Many people don’t pay enough attention to charges, perhaps because the numbers look small. “One-percent, that's next to nothing isn’t it?”
Whilst charges can’t be avoided altogether, an understanding of what we are paying for enables us to make choices about what products and investments we choose and why.
The old and the new
The way we pay for investment products has changed over the years. This is partly because of innovation and new product designs, but also because the regulator, the Financial Conduct Authority, has demanded greater transparency.
Until about 10 years ago, most people paid a single charge for their pensions and ISAs, and most people that are saving in workplace pensions today still do. However, most people saving on their own in either a pension or a stocks-and-shares ISA, or those consolidating their pensions in advance of retirement pay two separate charges; one for administration and one for investment. Some people may also be paying advice fees.
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