Glossary
Should you take a pension lump sum or an annuity?
At retirement many pensions offer a choice: a single lump sum, or a monthly payment for life. They are genuinely different products. The annuity transfers longevity risk to the plan; the lump sum keeps flexibility and inheritance but leaves you managing the income yourself.
There is no universally right answer. It depends on your numbers.
The annuity tends to win when you have little other lifetime income, expect to live a long time, and want the decision made once. The lump sum tends to win when you already have a floor of lifetime income, want to leave money to someone, or need flexibility for large irregular expenses.
One detail people miss: lump-sum calculations are sensitive to the interest rates used to convert a payment stream into a single figure. The same benefit can be worth noticeably different amounts depending on when you elect.
What each option actually gives you
| Lump sum | Annuity | |
|---|---|---|
| Longevity risk | You carry it | The plan carries it |
| Flexibility | Full control | Fixed payment |
| Inheritance | Whatever remains | Only via a survivor election |
| Inflation | You must plan for it | Usually no adjustment |
| Decision | Reversible in how you invest | Effectively permanent |
Let us find out what your portfolio can actually pay you.
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