Pension for life versus lump sum?

[sillybesom]

To make things clear - I hope the question never arises! But DH's employers are changing their death in service benefits. In the event of his death I can have a lump sum (approx £900,000) or a pension of £30,000 every year for the rest of my life. Which is better? We are both late 40s, DS1 is finishing Uni next year, DS2 will start Uni September 2011. I work in an averagely paid job but like many mothers will not have a great pension on retirement. DH is in good health but who knows what fate has in store (one of his colleagues literally dropped dead a couple of months ago aged 45, no underlying health problems). Any advice?

"A bird in the hand is worth 2 in the bush"

If you think about it logically £30k a year will take 30 years to reach £900K.

If you take the lump sum you can invest it and with interest of say 3%, that alone would give you an income of £27K per annum. So in effect you'd get both by taking the lump sum, although inflation will reduce its worth over the reast of your life.

Not only that but what if you die within a short space of each other (sorry to be morbid) the pension would be lost (unless there is a dependants pension for them included). The lump sum could be written into trust for yours sons.

On first glance I would say lump sum BUT I would suggest you find a good independent financial adviser to look at the detail of the choies you have.

Good Luck and I hope you both have a long and fruitful life.
x

The average life expectancy for a woman is 84 years so if say 48 years old and you live for the average, at 30k pa you would get 1.08 million pounds therefore 108,000 less than if you took the lump sum.

However, if the lump sum was tax free the pension wouldn't be as under UK trust fund law, the lump sum could be free of income tax and could be not subject to IHT either.

DH (who is a pensions manager and gave me that info) says he would take the lump sum and invest the money for the kids.
Personally, I beg to differ and suspect he would buy the Aston Martin he has been dreaming about for years

Also, if you took the 30k a year and had a job with a relatively small income you would be subject to 40% taxation.

Thank you Scooby and Mumoverseas. I thought that the lump sum would be best,too, but am financially illiterate and thought that somebody would have good advice! The lump sum would be tax free so it would make sense to take it and invest it for the future. And if I were to take the pension and then die soon after DH then the pension would die with me and the boys would not benefit from it - it would be good to know they would be financially secure.

Can you die first and I'll marry your husband?

Ah, said, it's his work benefits so doesn't work like that! (DH is a bit pissed off to realise that if he drops dead I'll be a wealthy widow (dripping with diamonds and driving a convertible) but if I drop dead he gets the house paid off and a few thousand quid in life insurance). Seriously, though, I'd rather keep the old bugger and hope we both get to enjoy our retirements.

My goodness that's a pretty generous benefit!
What on earth does he do?
(somehow, I don't think its likely to be one oof those so-called gold plated public sector pensions )

It's a no-brainer, I think - take the lump sum

The trouble with a pension for life is that it dies with you. A lump sum can be passed to the children.

Even assuming you don't die early, and working on average life expectancies, you would be better off taking the lump sum, because:

1. You can invest £900k and it should produce more than 3% pa to beat the pension

1. You need to take into account the time value of money (the value of a pension is eroded over the years by inflation).