Pension fees

What pension fees are really — costing you over 30 years.

The compound drag of pension charges is the most consequential number most savers never calculate. Here's the maths, a worked example at £100,000, and the rate to aim for.

By Pension Bible editorial team·Last reviewed 9 April 2026·5 min read

The maths: 0.5% doesn't sound like much

The reason pension fees feel harmless is that they're expressed as small percentages. Nobody pays 0.5% annually and thinks "there goes £38,000 of my retirement." But that framing obscures what's actually happening.

Each year, your fee reduces the capital that compounds in the following year. A 0.5% fee on a £100,000 pot growing at 5% doesn't just cost £500 in year one — it costs the growth that £500 would have generated over every subsequent year of the investment. That's the compound drag: the cumulative loss isn't the sum of annual fees, it's the sum of annual fees plus all the growth those fees would have produced.

The maths is straightforward. Take a £100,000 pot, a 5% annual gross return, and compare three fee levels over 30 years using the standard compound growth formula: Final value = P × (1 + r − f)^n, where P is the starting pot, r is the gross return rate, f is the annual fee, and n is years.

• At 0% fees: £100,000 × 1.05^30 = £432,194
• At 0.5% fees: £100,000 × 1.045^30 = £374,532
• At 1% fees: £100,000 × 1.04^30 = £324,340

The difference between 0% and 0.5% is £57,662. The difference between 0.5% and 1% — half a percentage point more — is another £50,192. You can model your own numbers using the pension fee calculator.

A worked example at £100,000 over 30 years

The specific "0.5% fee difference costs £38,000" figure deserves a precise calculation, because that's the number most relevant to savers choosing between two providers.

Suppose you have a £100,000 pot and are deciding between Provider A (total cost 0.25%) and Provider B (total cost 0.75%) — a 0.5 percentage point difference. Both providers invest in similar funds, and both grow at 5% gross. Over 30 years:

• Provider A at 0.25%: £100,000 × 1.0475^30 = £402,561
• Provider B at 0.75%: £100,000 × 1.0425^30 = £347,399

Difference: £55,162. If the comparison is between 0.25% and 0.75%, the gap is over £55,000.

For the more common comparison between a 0.3% provider and an 0.8% provider (e.g. a low-cost SIPP versus an older personal pension):

• 0.3%: £100,000 × 1.047^30 = £392,013
• 0.8%: £100,000 × 1.042^30 = £354,449

Difference: £37,564 — which is where the £38,000 figure comes from.

The key insight is that the loss isn't uniform across the 30 years. In the early years, the fee costs relatively little in absolute terms. In the final decade, as the pot is largest, the annual fee drag is largest. This is why reducing fees early compounds most powerfully — and why the same fee reduction in year 25 saves far less than in year 5.

Platform fee vs fund charge: which matters more?

Most savers focus on the platform fee (sometimes called the AMC — Annual Management Charge) when comparing providers. It's the number that's most prominently advertised. But the OCF — Ongoing Charges Figure — attached to the fund itself is equally important, and for many savers it's the larger of the two.

A typical breakdown on a workplace pension default fund might be:

• Platform AMC: 0.30%
• Fund OCF (active managed): 0.80%
• Total: 1.10%

And on a low-cost SIPP with a passive index fund:

• Platform AMC: 0.15%
• Fund OCF (global tracker): 0.22%
• Total: 0.37%

The difference between these two is 0.73 percentage points. On a £100,000 pot over 30 years at 5% gross growth, that gap compounds to over £70,000 in lost returns.

If you're comparing two platforms on AMC alone and ignoring the OCF of their default investment options, you're comparing half the cost. The only meaningful comparison is total annual cost — platform fee plus fund OCF — in the context of the specific fund you're actually invested in. Our guide to pension fees has more on how to find both numbers.

For small pots (under £50,000), fund choice has the larger impact because the OCF gap between active and passive funds is typically wider than the platform fee gap between comparable providers. For large pots (over £100,000), the platform fee model — percentage versus flat — starts to dominate, because flat-fee platforms stop scaling with pot size.

What rate is reasonable?

Here's the practical benchmark for 2025/26:

The FCA mandates that workplace default funds used in auto-enrolment cannot charge above 0.75% in total. Many workplace pensions come in under this — 0.3–0.5% combined AMC and OCF is typical. Personal pensions and older policies are unregulated on this front, and some legacy products still charge 1% or more.

If your total cost is above 0.75% on a pot of £25,000 or more, the compound argument for switching is hard to dispute. The pension fee calculator will show you the pound impact in your specific situation.

This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.