The UK's Cheapest Pensions

With these ultra-low-cost plans, you can save cheaply towards retirement, plus slash the fees levied on existing pension pots.

One of the biggest problems with investing for the long term is the charges that build up. For example, if you invest in a stock-market fund which makes 10% a year but has a fee of, say, 2% a year, then your annual return drops by a fifth.

Thanks to the amazing power of compounding, the loss of 2% of your money each year in fees has an enormous impact on the final value of your investment. The table below shows how much a one-off lump sum of £1,000 would be worth after various periods, growing at 10% a year or 8% a year:

As you can see, that 2% yearly charge makes a huge difference, especially over decades. Indeed, after forty years, our fee-free fund grows to be worth more than twice as much as its rival that charges 2% a year. Ouch!

As charges have a huge bearing on investment returns in the long run, we Fools take great care not to pay over the odds for investment management. Indeed, The Motley Fool is a big fan of index-tracking funds -- passive investments which simply track a particular index (such as the blue-chip FTSE 100 index) at low cost.

Alas, until very recently, finding ultra-low-cost pension funds in which to save for retirement has been pretty tough. Although the government launched low-cost Stakeholder pensions in April 2001, these can charge up to 1.5% a year for the first ten years and then 1% thereafter. Despite the protests of the pensions industry, these charges are still far too high for my liking.

However, the great pensions rip-off is under threat, thanks to two new ultra-low-cost pensions which have caught my eye. The first comes from leading IFA Hargreaves Lansdown, which offers a very cheap Self-Invested Personal Pension (SIPP.) Thanks to its mega-low charges, I have invested in an HL SIPP, as have my six-year old son and four-year-old daughter.

The HL Vantage SIPP has no set-up charges or ongoing costs, assuming that you invest in certain funds. What's more, by investing in the HSBC FTSE All-Share index-tracking fund, you pay a total expense ratio (TER, or total ongoing charges) of just 0.25% a year. The minimum investment in this SIPP is £50 a month or £1,000 a year, putting it well within the reach of most workers

The other low-cost pension comes from global investment giant Fidelity International. This week, it launches a personal pension plan which is fee-free for life. If you open a Fidelity Personal Pension before 10 December, then you pay no set-up fees, annual administration charges or upfront fees on funds ever.

The only fees you pay are the usual annual management charges levied by the investment companies that you choose to manage your money. So, by investing in Fidelity's MoneyBuilder UK Index, one of the UK's cheapest tracker funds, you can create a pension which has total annual expenses of just 0.3%. However, this pension plan requires a minimum contribution of £300 a month, £3,000 a year, or £10,000 for lump sums and transfers.

Furthermore, it's worth noting that both of these pension plans charge no fees on inward transfers, so you can slash the cost of existing personal pensions by transferring these funds to HL or Fidelity.

I've never seen such cheaper pensions for sale to the general public in my entire life. Indeed, some pension funds have TERs over ten times as high, that is, 2.5%+ a year. So, fee-conscious Fools, I highly recommend both of these ultra-low-cost pensions

More: Choosing A Low-Cost SIPP | Learn more about The Fool's SIPP | Invest in a low-cost index tracker today