Lump sum or not

1931modela

Just looking for someone to work out whether taking a lump sum is the right way to go.
One of my pensions is an old DB pension with a Estimated Lifetime allowance shown as £221,248.00 at retirement age, (statement date July 2019) I have the following options:
Option 1.  Est Annual Pension of £11062.44 and spouse pension of £5531.22 on my death
Option 2.  Est Annual Pension of £7823.07 and a Lump Sum of £52,153.82 and spouse pension of £5531.22 on my death

I am due to get a revised pension forecast in July this year.
I am still working and have an LGPS pension due when I retire along with a state pension of £9598.77 pa at present, I have been asked to continue working part time and may do this for another year, which would bring in another £18,000  before tax

I am in reasonable heath apart from being type 2 Diabetic, house paid for, no loans or credit card debt but would like to travel more in retirement
My wife is still working and will get an LGPS pension as well when she retires in  years, so my question based on above is whether the lump sum or larger annual pension is the way to go.

Sorry it is such a newbie question, but can't really find the answer, I believe it is something to do with the commutation factor!! which is what I can't work out.

jimi_man

Hi

The commutation factor is fairly easy to work out. Just divide the lump sum amount by the amount of pension you are giving up. £52153/£3239 which comes out around 16:1. It's not particularly generous, though it depends on how old you'll be.

Whether to take it is a personal decision, depending on a lot of factors, how much you need a lump sum like that, what you plan to do with it, what other savings you have, your health etc etc. If you 'left' the £52153 in the pension, it would earn £3239 every year, rising with inflation (I assume) which is around 5% after tax, every year. Obviously the lump sum is tax free, whereas the £3239 isn't. 

Albermarle

In addition to the points already mentioned ,it is a sort of gamble with how long you will live. 
The longer you live then it would be better not to take the lump sum but of course you do not know this in advance.