Rule of thumb · FinanceNº 67 / 238

Half a point of charges ≈ a tenth of the pot

How much do pension charges cost over a working life?

Every extra half a point a year in pension charges takes about a tenth off a 30-year pot.

Why it works

Charges come out of the balance every year, growth included, so they compound against you. On a typical plan over 30 years, 0.5% a year costs about 9.5% of the pot, and the next half point a further 9%.

When it fails

It is a 30-year figure. Over 10 years half a point costs about 3.5% and over 40 years about 12.5%, because money paid in late is charged for only a few years. It also assumes a percentage charge on the pot; a flat fee behaves differently, and platform, fund and transaction charges add together, so the total you pay is the figure that counts.

Do it exactly

Estimate with the rule, then check it against the calculator that models it properly.

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