Four ways to keep your pension costs down
1. Keep advice charges low
Advice doesn't come free, but you have choices over the way you pay for it, at least until the end of 2012 when commission is due to be banned.
Malcolm McLean, pensions consultant at Barnett Waddingham, says: "If you choose commission, the AMC on your plan will be higher or the amount invested will be reduced."
With a fee-based arrangement you can negotiate a one-off up-front amount with an adviser, but check that the commission rebates then go to you.
McLean says: "An adviser whoarranges an individual pension on a fee basis will get the lowest terms available - typically an AMC of 0.6%. If they get commission instead, this may increase the AMC to 1%. The 0.4% is used to fund commission."
You can also squeeze charges further by buying without advice. This has been made much easier for buyers to do with confidence thanks to the boom in online investment information and tools, and you can now avoid commission by buying a plan through a broker or make your own investment decisions with an online SIPP.
You can also try to avoid trail commission.
2. Get cheaper investments
Another cost-cutting measure is to put passive investments in your pension. Because they are set up to track an index such as the FTSE All Share, they also cost less to manage.
McLean says: "If you purchase passive investments, you want the charges to be as low as possible because you are not buying anyone's expertise." He suggests avoiding providers that charge anything near 1% or more.
3. Select a discount SIPP
SIPPs can attract high charges, including annual and setting-up charges and dealing fees, but fierce competition is pushing down costs for the less bespoke variety of plan.
Justin Modray, founder of financial information website Candid Money, says: "Sippdeal is one of the cheapest options if you only want shares and funds as there's no SIPP fee, just a £9.95 dealing charge when you buy and sell shares. Most funds have no initial charge."
Alliance Trust Savings offers a good deal for funds. "It rebates all trail commission, typically saving 0.5% a year, which should more than outweigh the £150 annual SIPP charge and £12.50 dealing fee for funds in excess of £30,000."
4. Compare providers
Where pension providers use investments from a range of providers, it's vital to shop around. McLean says: "Many investment managers do not offer a pension product, but link with pension providers to allow access to their investment funds.
"An individual can generally access the same investment funds via a number of providers, which may charge a different AMC."
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.