MyCompanyPension.co.uk - Helping members of occupational pension schemes to better understand their benefits.

21st November 2018
:: Blog | July 2008 (14 blogs) | 10 reasons why you...

 
 
 
 
 
 
   
I find your website invaluable in keeping up to date with things!!
  
 
Faye Willetts, Regional Pensions Support Manager, Zurich Financial Services 
   
 
 
10 reasons why you may not want to take that cash lump sum from your pension
 
It's surprising to see how many retirees leap into taking the tax free cash lump sum from their pension benefits without taking advice. It's a common question: Is there any reason I shouldn't take a cash lump sum? 
 
Retirement planning is never straightforward and factors such as current and future health, life expectancy, lifestyle, attitude to risk, debt, inflation etc would all play a different part in deciding what is best when someone looks to take their penson benefit. It's very rare indeed that any two people, coming up to drawing their pensions, would have identical circumstances.

So, playing devil's advocate, and with some poetic licence here is a quick list of 10 reasons why you may not want to take that cash lump sum
 
  1. You are in a defined benefit scheme and the cash commutation rates are poor.
  2. You are in a money purchase scheme which has an excellent guaranteed annuity rate attached to it.
  3. You are married and the scheme offers a two thirds spouse’s pension – but only on the pension left over after you have drawn any cash lump sum. Therefore taking the cash will reduce the spouse’s pension. The spouse’s pension is a very important factor in your retirement provision.
  4. As above for point number 3. but for dependants’ pensions rather than (or in addition to) the spouse’s pension.
  5. You have a number of pensions and you will use this one to hedge against inflation because it is one of the largest of your retirement provisions and has excellent increases to your pension in payment – and you believe inflation is going to rise in the medium to long term.
  6. You have sufficient cash reserves and investments elsewhere.
  7. You are suffering particularly poor health and you can get a substantially improved pension elsewhere, using your open market option to buy an impaired life/enhanced annuity from a specialist pension provider.
  8. You are terminally ill. HMRC has special provisions for registered pension schemes under the serious ill health provisions.
  9. You don’t need the cash now and you don’t need your old age pension. As part of your pension planning you have factored-in deferring taking your Basic State Pension and intend to take a lump sum after 5 years.
  10. Although your pension is going to be modest, taking the cash will lift your savings just over the limit so that you may be unlikely to receive other state benefits/credits.
  11.  
Of course, the list doesn't include other 'human' factors such as being weak-willed for example, which can lead to impulse spending from funds we've set aside for a rainy day. That's why taking advice, well in advance of when you intend to draw your benefits is essential. In addition, it makes sense to regularly review your retirement provision so that you can plug any gaps and weaknesses, as when and if circumstances permit. 
 
 
Related article. See:
Mike Jones, MyCompanyPension.co.uk, (first posted 22nd July 2008)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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