With 56 per cent of self-employed UK adults – around 2.4 million people – unaware of the fees they are paying on their pensions, InvestEngine has called for greater transparency to prevent self-employed people from working longer and delaying their retirement.

The company’s research revealed that four in 10 (39 per cent) pension holders did not realise there were fees associated with their pension, and 24 per cent wrongly believe that higher fees indicate that the pension and provider are of better quality.

InvestEngine head of pensions, George Bonello, said too many people are unaware of the fees they are paying or mistakenly think higher costs mean better performance, but stressed that with living costs “still high and retirement incomes under pressure, minimising unnecessary charges has never been more critical”.

The importance of addressing adequacy among self-employed UK adults has been recognised by the government, as the revived Pension Commission’s review on retirement adequacy will have a particular focus on underrepresented groups, including the self-employed.

There have been debates across the industry on whether steps such as automatic enrolment, greater fee transparency, and personalised nudges could help ensure self-employed workers save enough, reducing the risk of delayed retirement or reliance on the state pension.

In its research, InvestEngine also highlighted its pension pot calculator tool, which showed the impact of paying annual fees on a Self-Invested Personal Pension (SIPP).

Paying 1 per cent in annual fees on a typical SIPP could reduce the size of a pension pot by tens of thousands of pounds over time.

For example, if an individual on a median UK salary of £37,430 put £150 per month into a private pension over 40 years, their pension could be worth £289,000, based on an annual 7 per cent rate of return and all eligible tax relief being claimed.

When combined with the state pension of £11,973 per year, it would result in a total annual retirement income of just over £23,500.

However, paying a 1 per cent annual fee would reduce the fund’s overall value by nearly £63,000, which is equal to losing out on seven years of retirement funds and could mean working longer to make up for lost funds.

In addition to this, InvestEngine highlighted that larger investments face greater losses due to these fees, noting that an individual who is on a salary of £120,000 and puts £500 a month into a pension with a 1 per cent fee, after 40 years, their pot could be worth about £940,000, providing an annual income of around £49,500, including the state pension.

However, if there were no platform fees, this same pot would be worth £1.2m, a difference of £259,000, which could increase an individual’s total annual income to £60,000 with a state pension, or fund seven more years of retirement at the same level of income.

“Too many self-employed people are unknowingly handing over tens or even hundreds of thousands of pounds in fees that could otherwise be funding their future,” Bonello said.

He explained that while a 1 per cent pension fee may seem small over decades, this “snowballs and seriously erodes” returns later in life.

“Self-employed people make up around 13 per cent of the UK workforce, but with no employer contributions and no default scheme like a workplace pension, many face greater challenges when it comes to retirement planning, so every advantage matters,” Bonello added.

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