Half (50 per cent) of Brits are not aware that they are paying annual fees on their pension schemes, and even amongst those who are aware, half (50 per cent) admit they have no idea what amount they are paying in fees is, research from Moneyfarm has found.

According to the survey, just under a third (32 per cent) of Brits think they know roughly what their annual fees amount to and just under a fifth (18 per cent) knew exactly how much they were paying to their pension provider.

The survey also found that nearly three quarters (73 per cent) of savers are not sure how they would go about finding out what they are currently paying in annual pension fees.

Moneyfarm estimated that Brits are, on average, paying annual charges of 2.5 per cent, which it argued is “way over what would be considered a reasonable amount”.

But, “worryingly”, Moneyfarm found that more than half (53 per cent) of savers think their fees are competitive and 23 per cent have ever thought to shop around and switch providers to benefit from lower fees for the same service.

It also warned that the fees paid on pension schemes are a financial blind spot for most people, highlighting a critical gap in financial literacy, which can play a big impact on the final retirement pot.

Indeed, analysis from Moneyfarm showed that even a “small 1.5 per cent difference” in fees could mean an extra £37,000 saved into a pension, marking a “significant” 48 per cent difference.

“A seemingly small amount in fees can lead to significant shortfalls over the long term," Moneyfarm pensions technical expert, Carina Chambers, said.

"The difference between 2.5 per cent and 1 per cent doesn’t seem much, but when it comes to pensions, we are talking about a large amount of money which is invested over a long period of time.

She also pointed out that apparently small percentage difference therefore compounds, meaning that "the losses we are talking about can be very significant".

Despite the importance of fees, the survey found that over half (51 per cent) of those questioned have no idea about the various types of charges they could be paying on their pension.

In addition to this, nine in ten (90 per cent) didn’t realise platform charges were associated with having a pension, while 83 per cent weren’t aware that fund fees were associated, and 68 per cent didn’t realise that management fees existed on their pension scheme.

Furthermore, 76 per cent of Brits didn’t realise that they were paying VAT on their pension, while a further 46 per cent were surprised to learn that they are being charged admin fees on an annual basis.

Given the findings, Moneyfarm said that it is “no surprise” that 39 per cent of savers think pensions are one of the most financially confusing things in life, with more than three quarters (78 per cent) feeling overwhelmed by what they are meant to do, while 38 per cent think they will never understand them.

What’s more, when looking ahead to retirement, more than a third (38 per cent) are not confident they have the right plans in place for their twilight years, with a further 32 per cent worried that they are not preparing themselves well enough for later life.

However, Chambers warned that while savers may find it easier to think ‘why bother finding out’, "you really shouldn’t put your head in the sand".

“Our caution is that whilst charges can sound miniscule, over time it could make a massive difference – a difference to the tune of tens of thousands of pounds – to your final pension pot, so shop around," she added.

---