Pension or Lump Sum?

Read More

pension-or-lump-sumPension or Lump Sum?

Many retirees are in a position where they need to decide between taking a pension or a lump sum on retirement. Workplace pension schemes may offer options of a lifetime pension, a lump sum or a combination of the two. A part lump sum option also applies to members of the old Government Superannuation Fund Scheme and to people who have transferred a UK pension (under certain conditions). In addition, you can now use a lump sum to purchase your own annuity providing a regular monthly payment for life. In all these situations, the key question is “Should I take a pension or a lump sum?”

The answer will depend on your personal situation. The advantage of a pension is that it provides a known amount of income for the remainder of your life. This helps take away the uncertainty of how long you are going to live and what investment returns will be. If you live longer than the average person, the total value of the payments you receive will be more than the value of the lump sum invested (plus returns). The key disadvantages with a pension are that you cannot access the capital sum invested, and if you die before the average life expectancy, any funds not already paid out to you will be forfeited. To avoid these situations, you can invest a lump sum in a variable annuity which allows partial access to capital and has a residual value at the end of life.

The key factors for considering your options are your life expectancy – based on your health and family history of longevity – and your ability to access large lump sums if required. If you have a decent lump sum in addition to a pension or an annuity you may have the best of both worlds.

Related Articles

Economy
Liz Koh

Budget Winners and Losers

The latest Government budget had something for everyone but while most households will be a few dollars a week better off, there are some clear winners and losers. In the winners’ corner are businesses, those on high incomes, and savers. The biggest losers are property investors who have built large portfolios financed partly by tax rebates.

Read More »

Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July.

Read More »

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Helping You Live your retirement To the Max

Keep in touch

Fill in your details and we’ll get back to you in no time.