pension vs lump sum balance

Am just about to retire and start the see the proceeds of an occupational pension. I need to decide whether to take the standard (25%) lump sum and the rest as pension or whether to increase or decrease the lump sum. The effect of a slightly larger lump sum is a smaller pension and vice versa. What factors should be weighed when deciding between the standard option and a larger or a smaller lump sum? I can exclude the more pressing ones such as an immediate need for max pension or an urgent wish to blow as large a lump sum as possible. The commutation factor is about 7.7%. A larger lump sum could be invested but 5% would be the max one should take in income. The larger savings stay there with a larger lump sum which presumably offsets the 2.7% or more reduction in income. With a larger pension and smaller lump sum there is a larger secure income, but less savings for the longer term. What else needs to be weighed up?

David M.

Reply to
D Mealand
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"D Mealand" wrote

as pension or whether

deciding between

more pressing ones

large a lump sum

could be invested

income. With a larger

Will you be paying (income) tax on the pension? If so, don't forget that the lump sum is *tax free*.

If you really wanted an income rather than lump sum, it might still be more effective to take the lump sum initially - but then immediately re-invest this in an immediate annuity. You'll then benefit from a "capital content" part of the annuity which is not taxed!

Reply to
Tim

In article , D Mealand writes

Without any detail, and not being an expert, my instinct tells me to keep as much money in your own hands, and as little as possible in an annuity.

e.g. you can invest your lump sum and, whilst you will only get around

3.5% or so in a bank/building society, you will always have the lump sum. Whereas, once it is converted into an annuity, you get the income, (presumably higher), but the lump sum is gone forever.

How big is the possible lump - could you buy a small house and get some rental income and, (possibly), some capital growth?

I am 43 and have liquidated all my insurance related assets, (endowments and pensions), and have them in either cash or property. I am not necessarily advocating property investment - each to his own and all that, but I have decided that the only person who is going to be looking after my money in the future is me

Reply to
Richard Faulkner

or over several years into an ISA, which if invested in fixed income (eg gilts, bonds etc) delivers income completely free of tax.

and an income element which is.

Daytona

Reply to
Daytona

pension or whether

Whether you think that you will live longer or shorter than the average for you age. Unless there are some very specific other factors, the annunity will pay you an amount based upon the assumption that you will live for the average expected lifespan. If you think you're going to beat that you should stick more in the annunity and if you think that you're going to die young (!) you should take the money and spend it. Note that the figures that you normally see for 'average lifespan' are not the ones that you should use, there is be a different age for someone who has already reached 65.

Of course if you want to gamble, you could just stick to doing the lottery

Tim

be invested

income. With a larger

Reply to
tim

The 25% lump sum is tax free. The pension is not. So take the lump sum.

If you want, you could use the lump sum to buy an additional voluntary annuity. You will only pay tax on the interest element of this, not the whole amount

Reply to
Jonathan Bryce

"Gareth Kitchener" wrote

Nah - it was Jonathan who answered my query a few days back on uk.bus.acc ...

Reply to
Tim

Didn't see your post. Looks like you sent it while I was typing my reply.

Reply to
Jonathan Bryce

"Jonathan Bryce" wrote

Looks like we replied at pretty much the same time, with pretty much the same content!

Reply to
Tim

Ever since I read that the recent Argentine government was considering forcibly converting pension funds into dubious government bonds to cover their own stupid fiscal disaster, I have decided that being top heavy in pensions is perhaps not the best idea!

Roland.

Reply to
Roland Watson

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