Lump sum, take it or leave it?

Victors_Bruvver

I took voluntary redundancy nearly three years ago and even with Margaret Clare's recent advice I still haven't got my finances in order. Now this morning I receive a letter from my pension provider asking me to make a decision within the next few months, and then sign the documents necessary to start receiving my pension early next year. Would not be too bad but the decision I have got to make is - do I take the lump sum and therefore a reduced pension or do I leave it all there and get roughly a third more paid to me each year? I would imagine (all of this is beyond me) that by leaving the lump sum alone it guarantees me a slightly better lifestyle but the concern is, if I take the lump sum and invest it, would it give me a better return. IE if it was wisely invested into safe options, sipps, issa’s etc., would it or could it make a return that would be equal to that third I would "lose" on my annual pension payouts? Any help or advice would be gratefully received

prudryden

Duns is your man for this. In the past, it was better to take the tax free lump sum, but now it seems to work out better the other way around. I hope some pros see this thread - very interested myself.

tanith

There was another thread about this the other day but I cannot find it, I think the consensus of opinion although it may not necessarily make complete financial sense was to take the lump sum now and get the benefit rather than leave it where it is and take the risk that you don't pop off fairly soon:T
I am taking my lump sum now and will decide how best to use it when it comes through in January....

As someone put it........ a bird in the hand......

wotsthat

Hello

This is a major decision that will have an impact on the rest of your life - it's got to be worth paying for some advice so that you understand the options better and can make a more informed choice.

There are more options than simply deciding whether or not to take the lump sum. For example you don't have to take the annuity offered by your pension co - you can shop around and WILL get a better deal. In fact, I don't think you have to take an annuity at all and can drawdown cash from your fund directly which means the fund remains yours.

As for my opinion on taking the lump sum - it's a no-brainer - take it! It's tax free and it becomes yours to do as you wish. If you buy an annuity with it you'll probably end up paying tax on it and you will have lost control of the capital.

You might get a range of different opinions and views on this board but you won't receive any advice. Please see an IFA - it's far too important to be left to the consensus of an internet forum.

EdInvestor

Is this a personal pension or retirement annuity contract from a life insurance company?

Does it have a guaranteed annuity rate (GAR) attached?

Roughly how large is the fund?

jonnyb

my dad had the same situation about 5 years ago when he retired.

he took the lump sum, which I thought was wrong, but his argument was that if he died early, my mum would benefit from the lump sum. If he had not taken it, her pension payment would have been reduced if he died and she would get no benefit.

5 years after retiring he got cancer and died in 6 months, so he had done the right thing. his lump sum was invested and mum benefits from it, despite having a reduced pension.

worth giving some thought to, depending on your circumstances.

prudryden

If it is a "Final Salary" pension - give very careful thought to whether you take the lump sum or not. Most are now working out at about 12 to 1 ratio, which means you have to earn over 8% on the lump sum to make up for the loss of monthly income. Definitely speak to a pension specialist. If it is not a Final Salary scheme, then your options are clearly different.

MABLE

prudryden wrote:

If it is a "Final Salary" pension - give very careful thought to whether you take the lump sum or not. Most are now working out at about 12 to 1 ration, which means you have to earn over 8% on the lump sum to make up for the loss of monthly income. Definitely speak to a pension specialist. If it is not a Final Salary scheme, then your options are clearly different.

I am in the same situation. I have a Final Salary Scheme and have been offered a lump sum of £27k and pension of £3600 per annum. However by taking it now would mean I am losing 20%. I have given my ex employers the 6 months notice to take the pension but they have said I can still change my mind. I;m thinking that the pension may not be there at 60 or I would not get as much as they are offering me now.
If I go ahead I would invest the lump sum and yearly amount.

prudryden

Dunstonh --- Where are you?

Paul_Herring

prudryden wrote:

Dunstonh --- Where are you?

It's the weekend - he can't be expected to be on here 24-7

kenshaz

I took the lump sum and bought an off plan apartment in the sun ready 2007,a bird in the hand is worth two the bush.The decision is dependent upon your individual circumstances ,how much income do you require to maintain your standard of living,if 1/2 of your previous income (In my case) was fine or do you need 2/3.My mortgage was paid and I had no debt ,the property was an investment and could give me potential income ,and was a fun place to go