What would you choose

[malagabob]

Regarding a pension forecast. If you were offered £2500 per annum, or a reduced £1500 per annum plus a lump sum of £10,000.

[Tilly2]

If you can afford to take the lower amount, you might put the lump sum in a tax free ISA.

[sunny-dave]

That's a poor multiplier - most schemes work on 12x rather than 10x.

At 10x (assuming you are 65 and in decent health) the pension is theoretically the better option - but a tax free lump of ten grand might be very useful to clear any other existing debts and/or buy a car, holiday etc.

[Old_Geezer]

Depends on your health situation. If you are not expecting to be around long you may prefer to get the cash to spend now, or leave in your will.

Also on your present financial situation, do you have debts you need to clear ?

£10k & 5% = £500, I haven't checked but think you'd be fortunate to invest and get more than the £1k extra pa the pension offers.

Ignoring inflation that lump sum is covered in 10 years of pension.

In my circumstances I think I'd take the £2500 pa. But my circumstances are not yours.

[VHG]

Well the pension is £1,000 a year less if you take the £10,000.

So if you live for 10 years after retiring you "break even" (I know this is not quite true as you will get the £10,000 now to invest).

So if you expect to live for more than 10 years after you retire I would take the £2,500 per annum.

Remember also that the pension is for the rest of your life so you may live 30 years or more after you retire.

If you do live for 30 years you may wish you had not taken that £10,000.

[malagabob]

Thanks to all for their answers.

[jamesnan]

My husband was also given that choice, we decided to go for the lump sum plus a monthly payment, on the belief that once we had the money, it was ours, and we could put it in a savings account, but if he was to die, then the amount that I got was very small and the lump sum would not be an option then.

[tali1]

Lump sum is better - invest it to start earning income from day 1.
Per annum amount will be eroded by inflation every year

[VHG]

>>Per annum amount will be eroded by inflation every year

The pension may be index linked in some way so may go up each year (poster does not say)

[factor-fiction]

As others have said it depends on your circumstances- age, health, current debts (if any) and whether the pension is indexed linked.
Another factor is whether you are a taxpayer. The lump sum will be tax free but the pension will attract tax at 20% if you are a taxpayer.

[malagabob]

factor30 You say the lump some is tax free all or some of it? Would it not take me over my personal allowance? Could I reclaim some back year ending April 2013

[boxtops]

A lump sum doesn't come into your personal allowance, it's tax free income. IMO.

[factor-fiction]

A lump sum from a pension is all tax free, regardless of whether you have no other income or an income of millions. The amount you can take tax free is up to 25% of the fund value. The ongoing pension income is taxable, however, provided your total income (including state pension) exceeds the personal allowance.

Your figures don't seem to quite add up to me, unless these are just two of several options put to you. If the £10000 figure is the maximum allowable tax free lump sum then your fund should be worth £40000, so the figure of £2500 a year is equivalent to 6.25% of the fund value. So I'm not sure why the lower fund value of £30000 (ie after the £10000 lump sum) gives a pension of only £1500 which is 5% of the revised lump sum.

[CaelinCarter]

I would like choose second option.