My partner is wondering what to do about a fund for retirement.

I will have a reasonable BBC Pension although it has been downgraded and is no longer a final salary pension.

My partner is a freelance opera singer with small and sporadic earnings. She is almost 40 and has been paying £30 per month into a Norwich Union pension for about 10 years.

We have no idea whether the pension is worth continuing or whether there is a more sensible option for someone with little spare income to pay into a retirement fund.

Any help would be much appreciated.

thank you
susanna

Susanna,

Retirement funding: Pensions or ISAs, or other ideas.

The big pluses for a pension have always been (a) you have locked the money away, and can't "fritter it away" on short-term expenditure like furniture, new car, holidays, etc, which are perhaps less important than running out of money in retirement at a time when you probably can't improve the position by working longer; (b) tax advantages for those whose income while working is being taxed at higher rates (40% upwards), while their expected income in retirement will drop down to basic rate tax levels (20% or thereabouts).
The big minuses for a pension are currently: (a) pension annuity rates are currently 'down on the floor' - i.e. you get very little pension relative to the amount of money saved up in the pension fund. It has not always been like this, but for the last few years the problem has been particularly acute. Who knows when/whether it will swing back the other way? (b) you can't draw on the money in the pension fund in order to deal with sudden emergencies. It's not much fun starving to death/losing your home after failing to pay the mortgage, through lack of ready cash, while knowing that you have a pension fund that you can't touch.
A lot of the answer is going to be dependent on personal attitudes: if you have a steely determination to pile up money in retirement funds, and are prepared, if necessary, to live more economically rather than spend your retirement funds in advance, then there's no real reason why ISAs are 'wrong' compared with using a pension.
If the person saving for retirement is a basic-rate taxpayer while working, the tax advantages of a pension diminish further.

What do you do about the existing Norwich Union pension? If it is a unit-linked one, what is the current total value of the units held v. the money paid in NET of tax relief received? There should be a statement showing the position at the last policy anniversary. If not, why not? Try asking N/U for an up-to-date statement of money paid in v. current value of fund, if there is no statement. If the pension policy is not unit-linked, we are back in the land of opaque information - it is not much point talking about current and future projected bonus rates, because that tells you very little about the expected value in 20 or 25 years' time.
Getting a pension transferred form the existing provider to another one is fraught with complexity. Typically, there may be an exit charge (does the cost make it unwise to change provider?) Most people take the route (or consider taking the route) of transferring the pension policy into a SIPP, if the value is enough to warrant the move on economic grounds - but you can't take ANY fund money out in cash, whether it's with N/U or in a SIPP, until the minimum legal retirement age for pension purposes (usually 55).
You should also check whether N/U had set a later retirement age at which to draw the benefits - there may be a charge for drawing the pension earlier if they did. Specialist advice is needed when switching pensions, but sadly, the advisory fees may outweigh the benefits. Do lots of detailed calculations before making a decision.

If it seems that the existing pension is not particularly brilliant, and IF it can be made 'paid-up' without to much financial damage, one solution MAY be to divert future pension savings into ISAs (up to £10,000 or so per annum), as this will get rid of the low annuity rate problem on future retirement savings.
As always, there is much to commend generalist investment trusts for long-term savings.
Hope that helps.

I, too, became very disillusioned with pensions - high charges - commissions - etc and despite the initial tax relief loss,
I have used PEPs and ISAs for many years and am very glad I did - I use a discount broker - good choices are Hargreaves Landsdown or Chartwell Direct.
I remember buying Perpetual [now Invesco perpetual] Income fund at £1 per unit now £20 +
My wife and I have, as a result of long term saving into ISAs etc, a tax free income in retirement from our ISAs, in excess of £1500 per month !! the only downside is that you have to endure the ups and downs of the stockmarket - but keep the faith !!
The secret is long term regular saving AND leave it there - no dipping in !!
Hope this helps.

It is not just higher rate tax payers who benefit from tax advantages of pensions: this example might well be another case. She will have received 20% relief on contributions into the scheme (claimed by Norwich Union).

Even if she has made 30 years of Class 4 NI contributions, a state pension today would be 5.6k, and the tax free allowance is 10.5k for the over 65. This leaves £4900 of other income which can be free of tax. Even if she saves at the current rate until retirement, the income from the NU savings is unlikely to be more than that.

One other way to use up her tax free allowance might be to transfer some assets into her name. I believe the BBC scheme allows a tax free lump sum to be taken. You don't give me enough information to work out whether this lump sum would generate enough income to use up her tax free allowance, and there are several reasons why you might not want to do this anyway.

If you have no other way to use up her tax free allowance in retirement, the 20% tax relief on the pension may be very much worth having, and you would not get this with an ISA.

There is a lot of good advice here. In the past, I have been an advocate on these forums for the benefits of pension funds but there is an issue of 'horses for courses' here because of susanna's partner's personal circumstances. As a freelance opera singer, she misses out on one big plus of an employer's pension scheme - the employer's contribution. I also imagine that, like sportsmen, a singer's working life is limited by physical factors, so she may not have the option of 'working longer' as the Government is urging us to do. Finally, her contributions are modest and unlikely to produce a capital sum that will buy a meaningful annuity. I don't know enough about pensions to say what I would do about the existing pension (can it be 'paid up' and left to grow until retirement without further contributions? Can she draw down her 25% tax-free now and leave the rest to grow?) but going forward from here I do think there is a strong case to divert her contributions from pension to ISA. What she loses in tax relief on the contributions, she gains in flexibility. With modest sums, it would be better to have the option of drawing a mixture of income and capital when the time comes, even if the capital eventually becomes depleted or exhausted, than have the capital locked up or given away for a tiny annuity. For people of modest means, there is absolutely no point in living a life of penury just to retain a capital sum at death!

Either way, she's going to have to increase those contributions above £30/month if at all possible.