I have received my personal pension offer and can't make up my mind whether to take all the pot in an annuity or to take all or part of the cash free lump some that I am allowed which amounts to £23 000. Obviously taking any cash sum would reduce the annuity. This would make a difference of £29 per week.
I am thinking that I could probably do better by investing this amount even in ISA s etc. What do people normally do ?
Thanks for any input
£29 per week for £23,000 is a yield of 6.55% which seems quite high for an annuity these days. Is that fixed or is there some inflation proofing?
Normally I (personally) would go for the lump sum, but if the pension provider is offering a very good annuity rate perhaps it's worth having the annuity.
Robert not an expert
Not an easy call! It often pays to take the cash but - in this case - you'd have to invest it at 6.5% to make up for the lost income. The (tax free) cash option is good if you plan to *spend* it - but not if you want to invest it for additional income.
Do you *need* the cash for some capital project or other, and how important is the £29 per week at stake?
What are the terms of the annuity? Is the income inflation proofed? Are you (or your dependants) guaranteed so many years' worth of income should you not live very long?
If you're in good health, and don't need the capital, leaving it all invested in the annuity sounds like a reasonable bet. If you're on your way out, and the annuity will die with you - but if you need the cash and not the income, get as much as you can out now.
In message , snipped-for-privacy@nocrap.com writes
When I retired I took the maximum lump sum (£20,000 in my case), but it was 1991 and the instant access account I plonked it in (in my wife's name as she wasn't a tax payer) were paying 10% interest. Things are different now, as others have pointed out.
The decision was also based on the fact that the pension paid to my widow would not be reduced by taking the sum up front.
Thanks for replies . My plan is a section 32 buyout so I have a protected annuity rate of 10% which is at flat rate and not inflation proof ...... I was just considering the tax implications as obviously the annuity is taxed . I am divorced so no dependents really and my kids will inherit my house anyway. I am in good health
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