Pension - Annual pension v Lump Sum

qbs

Final salary pension scheme allows £1 sacrifice in annual pension for £12 increase in lump sum.
Opinions please on max pension v max lump sum.

dunstonh

Whilst one may be financially better than the other in terms of only looking at the money side, you still need to take into account your wider financial circumstances. Spouse/dependents, debts, other sources of income, other capital held or needed, risk profile, health etc can all impact on which option is best overall.

atush

Do you have other savings and investments? Dependants/spouse?

Like D says, it depends on things like that. In general though, a 1:12 ratio isn't very great so i'd take a larger pension unless I really needed extra LS.

Andy_L

Very roughly you'd need ~£20 of lump sum to buy £1 of final-salary quality (ie same indexation and spouse benefits) pension.

gamston

i'm in same type of boat
up until the weekend, i was going for higher annual pension,
but having just put my request in for early retirement i just don't know which way to go now
big lump sum you then need to make that money work for you, but you do have the money
higher annual pension you have a better income,but if you die how much do your dependents get

atush

50% to spouse perhaps? It will be in your scheme details and is something you need to take into acct.

A large LS is mostly needed by those who haven't saved a large nest egg in cash/investments outside a pension.

But those who haven't, have shown an unwillingness/inability to save in general so perhaps should not be encouraged to try to live on a smaller pension as it you haven't been able to save on a higher salary, how will you be able to get by on a pension reduced to pay a larger LS?

kidmugsy

gamston wrote: »

higher annual pension you have a better income,but if you die how much do your dependents get

Why ask us - you're the one with the rule book.

slush

A bird in the hand is worth two in the bush.
Pension funds will increasingly come under attack.. so I'd rather have my hands on my money before someone wants to attack my pension.
Also, when I die my pension will be slashed, so I'd rather have the comfort of knowing that my OH has the funds.

kidmugsy

slush wrote: »

A bird in the hand is worth two in the bush.
.

On which principle nobody would ever save at all.

slush

kidmugsy wrote: »

On which principle nobody would ever save at all.

Me thinks you misunderstand my point

qbs

Thanks for responses.
dunstonh - no debts, adequate savings/investments/income from savings/investments so looking at pension almost on stand-alone basis.
atush - agree1:12 isn't brilliant so currently leaning towards larger pension/smaller lump sum. As above, no immediate capital requirement so may be better to think on pension as "lifeboat" fund and preserve it at a higher rate.
gamston - making the lump sum work isn't easy at the moment so I/you need to think about that. Also, you've said early retirement, so you're pension will have to run longer and, I assume, pay out at a lower rate.
slush - perceived wisdom in times of better investment returns would almost certainly have been to take as much as fast as you could and invest funds surplus to immediate requirements to supplement lower pension.