Key takeaways
- On £500 a month growing at 5% a year, an all-in charge of 1.5% leaves £525,057 after 40 years against £751,459 at 0.05%, a gap of £226,401.
- That gap is 94.3% of the £240,000 paid in over the four decades, so the charge costs almost as much as the contributions themselves.
- The same 1.45 point spread costs 7.8% of the pot over 10 years and 30.1% over 40, because the charge compounds against you.
- ESMA measured active equity UCITS at 1.39% ongoing costs over 2015 to 2024 against 0.28% for passive, with net returns of 7.6% and 9.3% a year.
- A fund charging 1.5% against a 0.05% tracker needs 1.45 points of gross excess return a year, every year, simply to draw level.
The short answer: fee drag takes a slice of the pot, and the slice grows with the horizon
How much does a 1.5% fund charge really cost over a working life, and how much would 0.05% have cost instead? It's an arithmetic question, so it has an arithmetic answer.
Take £6,000 a year, the same annual total as £500 a month, paid in at the start of each year and growing at 5%. That is the regulator's own method. The FCA handbook requires a standardised projection to be calculated on the basis that contributions are "accumulated, net of charges, at the appropriate rate of return compounded on an annual basis", and 5% was the maximum intermediate rate it permitted for personal pension projections in the version of COBS 13 Annex 2 last updated on 19 November 2025.
Run that for 40 years. At 0.05% the projection ends at £751,459. At 1.5% it ends at £525,057. The difference is £226,401, which is 94.3% of the £240,000 that went in.
Here's the part most people underestimate. A charge isn't a levy on your contributions. It's a levy on everything the contributions earn, and then on everything that lost earning would itself have earned. Over 10 years the same 1.45 point spread costs 7.8% of the pot. Over 40 years it costs 30.1%. Nothing about the fee changed. Only the number of years it had to work.
The full cost table: seven charge levels, four horizons, one contribution schedule
Every cell below is the same calculation: £6,000 contributed at the start of each year, compounded annually at 5% less the charge shown in the first column.
| All-in annual charge | 10 years | 20 years | 30 years | 40 years |
|---|---|---|---|---|
| 0.05% | £79,018 | £207,119 | £414,791 | £751,459 |
| 0.25% | £78,136 | £202,412 | £400,078 | £714,469 |
| 0.50% | £77,047 | £196,699 | £382,514 | £671,080 |
| 0.75% | £75,975 | £191,168 | £365,827 | £630,647 |
| 1.00% | £74,918 | £185,815 | £349,970 | £592,959 |
| 1.25% | £73,877 | £180,633 | £334,900 | £557,823 |
| 1.50% | £72,852 | £175,617 | £320,577 | £525,057 |
Read down any column and the steps look small. Read across a row and they don't. Moving from 0.05% to 1.00% costs £4,100 over 10 years, which is less than a year's contributions. The same move costs £158,500 over 40 years. The chart above plots the final column, and the shape of it is the point: the bars fall away faster than the charge rises, because each extra basis point is applied to a pot that the previous basis points already shrank.
The 40-year row for 1.5% is the one worth sitting with. £525,057 against £751,459 is not a rounding difference in a footnote. It's a third of the outcome, decided by a number that appears once on a factsheet.
The pounds depend on the growth rate, and the fraction almost doesn't
The obvious objection to any table like this is that 5% is an assumption, and a generous one. The FCA sets 5% as a ceiling for pension illustrations rather than an expectation, and the equivalent ceiling for other products is 4.5%. Its intermediate price inflation assumption is 2.00%, so a 5% nominal projection is closer to 3% in real terms.
So run the same table at those rates. At 4.5% growth the 40-year gap between 0.05% and 1.5% falls from £226,401 to £196,784. At 3% it falls to £130,018. The pounds move a lot.
The fraction barely moves at all. As a share of the cheaper pot, the gap is 30.1% at 5% growth, 29.7% at 4.5% and 28.2% at 3%. At the 10-year horizon it's 7.8%, 7.8% and 7.7%. That's the useful result here, and it's why arguing about the growth assumption misses what the table is for. How much money you end up with depends heavily on returns you can't control. What share of it fee drag takes depends mostly on the charge and the horizon, both of which are known in advance.
The ongoing charges figure is not the charge you actually pay
The first column of that table says "all-in", and that word does a lot of work. The ongoing charges figure on a fund factsheet is one layer. A UK investor normally pays a platform fee on top of it, and published schedules make the stacking easy to see.
- Vanguard's UK platform charges an account fee of "0.15% a year (max £375 a year)" for self-managed accounts of £32,000 and over, with £4 a month below that, and lists the fund management cost of its own range as "0.06% to 0.79%".
- Hargreaves Lansdown's Fund and Share Account charges 0.35% a year on the first £250,000 held in funds, then 0.25% up to £1mn.
- AJ Bell states a headline account charge of "Never pay more than 0.25%".
Stack the cheapest realistic combination and you land near the top of the table, not below it. State Street's SPDR S&P 500 UCITS ETF listed a total expense ratio of 0.03% as at 31 July 2026. Hold it on Vanguard's platform and the all-in charge is 0.18%, worth £727,178 over 40 years. Put the cheapest fund Vanguard lists, at 0.06%, on a platform charging 0.35% instead and the all-in charge is 0.41%, worth £686,348. That single platform choice is £40,829 over the horizon, and neither fund did anything different.
This is why the cheap end of the fee ladder is harder to reach than it looks, and why a comparison of platform fees matters as much as the fund choice for anyone whose balance is growing. The other layers, spreads, foreign exchange and tracking difference, sit underneath both. We have walked through the total cost of owning a fund layer by layer elsewhere; the number that belongs in the first column of this table is that one, not the headline.
The crossover: 1.45 points of excess return a year, before the charge buys anything
Set the compounding aside for a moment. Two funds hold the same assets. One charges 0.05%, the other 1.5%. Their net returns are equal only when the expensive one earns 1.45 points more a year, gross, averaged geometrically across the whole holding period. That's the crossover, and it doesn't shrink with time. What grows with time is the cost of missing it, from 7.8% of the pot at 10 years to 30.1% at 40.
William Sharpe set out why that bar is hard in the Financial Analysts Journal in 1991. His argument needs no data at all: "before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar" and "after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar". These, he wrote, "depend only on the laws of addition, subtraction, multiplication and division".
Measured returns say much the same. ESMA's 2025 report on the costs and performance of EU retail investment products puts active equity UCITS ongoing costs at 1.39% at the ten-year investment horizon covering 2015 to 2024, against 0.28% for passive non-ETF funds and 0.26% for ETFs. Net performance over the same horizon was 7.6% a year for active funds and 9.3% for both passive funds and ETFs. Add the costs back and the implied gross returns are 8.99% and 9.58%.
So the average active fund needed 1.11 points of gross excess return to justify its extra active fund charges, and delivered 0.59 points less than the passive alternative. It didn't merely fail to earn the fee. It started from further back. ESMA's own summary is that passive funds are on average about 60% to 80% cheaper than active funds. Our reading of the SPIVA scorecard reaches the same place from a different dataset.
One caveat on that arithmetic: adding ongoing costs back to net performance approximates a gross return and ignores entry and exit charges, which ESMA measured separately at 0.51% subscription and 0.04% redemption for equity UCITS over 2020 to 2024.
The strongest objection: the average is not every fund, and the cheapest headline is not the cheapest outcome
Two things cut against reading the table as an argument for whatever fund shows the smallest number.
The first is dispersion. ESMA found that for bond funds, the top 25% of active funds outperformed the top 25% of their passive peers at the one-year investment horizon. Averages hide that. If skill exists and you can identify it in advance, the crossover is clearable, and 1.45 points is a bar rather than a wall.
The second is that price is a poor signal in either direction. The FCA studied the relationship between the ongoing charges figure of UK retail active funds and their performance for its Asset Management Market Study, published in June 2017. It concluded that "there does not appear to be a clear linear relationship between fund charges and the gross performance generated by the fund manager", though it did find "some evidence that more expensive active funds underperformed cheaper active funds" once fees were taken off. Expensive funds were not systematically worse stock pickers. They were the same stock pickers, charging more. That is a narrower claim than "active management doesn't work", and it's the claim the data supports.
There's a third caution that runs the other way. A low headline charge doesn't guarantee a low outcome, because tracking difference, spreads and securities lending all sit outside the ongoing charges figure. We tested that gap directly in the cheapest index fund comparison, and the ranking by headline fee and the ranking by delivered return are not the same ranking.
What this arithmetic cannot tell you
The table is a projection, not a forecast, and its limitations are worth naming. Returns don't arrive as a smooth 5% a year. A real path with the same average produces a different pot, sometimes very different, because the order of the good and bad years interacts with the contribution schedule. The table cannot tell you what your path does.
The annual compounding convention is the regulator's simplification, and it applies to the contributions too: the table pays in £6,000 once a year rather than £500 twelve times. Charges are typically accrued daily against the fund's assets, which makes the true drag marginally different from the figure in each cell. The direction of the answer doesn't change; the last few hundred pounds do.
The evidence on active performance is EU27 data. ESMA's statistics cover the period after the UK's withdrawal from the EU on 31 January 2020, so a UK investor is reading the closest available sample rather than their own market. The FCA's own price and performance work is a 2017 study of a UK sample, and its finding that bundled active share classes sat at "approximately 1.6%" describes money-weighted pricing over 2005 to 2015. Charges have fallen since. ESMA's one-year figure for active equity UCITS was 1.28% at the end of 2024.
The table also ignores tax wrappers, contributions that rise with earnings, and the tier breaks that cut percentage platform fees on larger balances. Each of those changes the pounds. None of them changes the mechanism.
ESMA's own worked example is a useful sanity check on the scale. A hypothetical €10,000 UCITS portfolio held over the ten years to 2024 was worth €15,530 net of ongoing costs, having paid €1,687 in ongoing costs along the way. That's a lump sum rather than a contribution schedule, and the shape of the answer is the same. If you want the lump-sum version in sterling, we've set out the cost of fees over 30 years on a fixed £100,000.
What would change the conclusion
If the horizon is short, the argument nearly disappears. Ten years of the entire 0.05% to 1.5% spread costs 7.8% of the pot. That is real money and it is not a life-changing sum. Anyone investing for a decade is making a much smaller decision than the 40-year row implies, and treating the two as the same decision overstates the case.
If manager skill is identifiable in advance, the crossover is a bar rather than a verdict. ESMA's bond-fund quartile result shows the top of the distribution clearing it. The open question has never been whether some managers beat the index. It's whether you can name them beforehand, and the FCA's finding that price carries no information about gross performance closes off the most obvious shortcut.
If fund fees keep converging, the platform becomes the whole question. A 0.03% ETF and a 0.06% index fund are three basis points apart. The platforms holding them charge 0.15% and 0.35%, and on the 40-year schedule that spread is £40,829. The layer that used to be the rounding error is now the larger half of the decision for a mid-sized portfolio.
The number to watch isn't the one on the factsheet. Fee drag is the sum of every layer, and that sum belongs in the first column of the table above. LedgerTouch reports that blended figure across a portfolio; a spreadsheet with three cells does the same job. Either way, the row you are actually on is the thing worth knowing, and most people have never checked which one it is.