High charges on Free-Standing Additional Voluntary Contribution (FSAVC) Pension Plans can significantly lower the fund value in comparison to paying more into your company pension scheme, where charges are often nil or heavily subsidized. Typical fees on FSAVCs are:

1. Management Fees

FSAVC pension plans typically involve various fees, including annual management fees, administrative charges, and other expenses. When these fees are high, they can erode the overall returns of the pension fund. The charges are deducted from the fund on an ongoing basis, reducing the amount of money available for investment and growth.

2. Fund Management Costs

Fund Management Costs: Many FSAVC pension plans invest in a range of funds or assets, such as equities, bonds, or other financial instruments. These funds often charge their own management fees, which are borne by the investors. If the underlying investment funds have high management fees, it can eat into the returns generated by those investments, further reducing the fund’s growth.

3. Sales Commission

In some cases, insurance agents or financial advisors may earn commissions for selling FSAVC pension plans. These commissions are often front-loaded, meaning a significant portion of your initial contributions may go towards paying these commissions. This reduces the initial amount available for investment, hindering the long-term growth of the pension fund.

4. Penalties and Surrender Charges

Some FSAVC pension plans may have penalties or surrender charges if you decide to discontinue or transfer the plan before a certain period. These charges can be significant and can further erode the fund value if you need to access your pension savings for any reason.

5. Inefficiency in Investment Choices

High charges may limit the range of investment options available within the FSAVC pension plan or result in inefficient investment choices. This can affect the overall performance of the fund, as it may not be invested in the most appropriate and cost-effective assets for your retirement goals.

6. Impact on Compounding

Over time, the impact of high charges can compound, significantly reducing the potential growth of your pension fund. The effect of compounding can be especially powerful over the long term, so even seemingly small differences in charges can have a substantial impact on the final fund value.

Negative impact of high charges

To avoid the negative impact of high charges on your FSAVC pension plan, it’s essential to carefully review the terms and conditions of the plan, understand all fees and charges, and consider seeking professional financial advice. It may also be worth comparing different pension providers and investment options to find a plan with lower charges and better potential for long-term growth.

If you have already contributed to a Free Standing Additional Voluntary Contribution (FSAVC) pension and you need help from a trusted advisor, get in touch.

View our highest and average claims against some of these FSAVC providers

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