How to compare the costs associated with pension saving

How to compare the costs associated with pension saving

Comparing pension savings schemes with each other is crucial to helping you make the right choice, given the different options available and the different types of costs, risks and returns involved. We have provided more information below on the entry charges and other costs associated with pension saving, as well as a comparison between pension savings funds and pension savings insurance plans.

Pension saving – return versus costs

Anyone who starts saving for retirement does so for 20, 30 or sometimes even 40 years. However, it’s difficult to predict how much income you’ll get from your savings. Besides the costs associated with pension saving, the return you receive plays an important part too. But don't just look at the performance of the past few months. It’s the full term that counts (in principle, until you retire) and past returns are no guarantee of future performance. Find out more about the return on pension savings schemes.

Comparing entry charges for pension savings schemes

You pay entry charges each time you put money into your pension savings. These are usually low for pension savings funds – for example 2 or 3%.

Entry charges also apply to pension savings insurance plans. Because your capital is protected in these plans, this percentage is somewhat higher than with pension savings funds.

Ongoing charges for pension savings schemes

With a pension savings fund, you also pay ongoing charges. These are basically the fund’s management and administration fees, expressed as an annualised percentage. They're not charged separately, but daily, as part of the price (also known as the net asset value). As a result, they mount up more than entry charges in the long term.

Pension savings insurance plans – at least at KBC – do not incur management fees. If you want to compare pension savings funds and insurance plans in terms of costs, always look at the aggregate figure for the entry charges and any management fees.

Exit charges and final tax

Normally, you continue with pension saving until you reach retirement. If you want, you can withdraw your savings early, but you’ll be heavily taxed regardless of whether your money’s in a pension savings fund or a pension savings insurance plan. In addition, there are exit charges to pay with an insurance plan.

Therefore, it’s more interesting to wait for the favourable rate of final tax (also known as the ‘advance levy’), which you usually pay on your 60th birthday. The exact amount of tax to be paid always depends on your personal situation and the relevant legislation at the time.

Comparing the pension savings fund with the insurance plan

We have summarised the differences between a pension savings fund and a pension savings insurance plan in the table below. Your choice depends primarily on your personal preference. If it’s a potentially higher return you’re after, a pension savings fund fits the bill. If you want to eliminate as much risk as possible, a pension savings insurance plan is the better option. 

Pension savings fund
Pension savings insurance plan

Tax relief

Chance of a higher return

Guaranteed rate of interest

Non-guaranteed profit share

Entry charges

Management fees

Exit charges

Final tax

Compared the ways to save for your pension? If so, then simply start saving for retirement and pave the way for a carefree retirement now!