Page 2 | Take a larger lump sum or higher annual pension?

RosieLeaLovesTea · 2025-07-27T17:44:05+00:00

I have been reviewing my pension. I am thinking I may be able to retire in 8 years at 55. My largest lump sum would be £119,000 and my annual pension would be &17,000 per year. Or largest annual amount would be £26,000 with a smalllest lump sum of £18,000. What would you do?

C8H10N4O2 · 08/08/2025 10:27

TonTonMacoute · 07/08/2025 21:37

I'm in the same position OP, and met with our pensions advisor yesterday, as it goes.

He seemed to think it was only worth getting the lump sum if you were going to spend it - ie if you wanted a new car or home improvements.

He also mentioned that you might be able to arrange to opt for the lump sum but draw it down gradually and not necessarily take it all at once, but you might want to check the tax implications of that.

The other thing is that if Reeves does decide to make pensions liable for IHT, you will need to check that your pension pot doesn't push the value of your estate over the exempt limit.

DC and DB pensions are already coming into IHT in 2027, the change was made in the October budget.

The only exception is the residual dependent’s pension (if it isn’t a widow/er pension which would be exempt anyway).

Edit- posted too soon.

I’m in a similar position trying to work out what and when to take pension wise as the ground keeps shifting. Pensions are supposed to be the poster child for careful, long term investment but the uncertainty is currently making decisions difficult for everyone facing retirement in the next few years.

BeCalmHelper · 15/08/2025 05:37

I retired at 55, with 87k lump sum and a 12,000 yearly. I am finding it hard and thinking about returning to nursing at 60 (this Month).

I bought a small flat, so no mortgage, however no holidays, finding it hard to make ends meet.
I receive my full state pension at 67, 7 years away.

So please do your math and ensure you have enough to do exactly
what you want.

I really don't want to go back, after 36 years, it eventually nearly broke me mentally.

GOOD LUCK

Blushingm · 15/08/2025 05:49

Defiantlynot41 · 27/07/2025 19:01

You are unlikely to be able to retire at 55 in 8 years time - the minimum age changes to 57 on 06/04/2028. So it would be worth re-running your numbers based on 57 (and keeping your fingers crossed for no more meddling from the Government on the age or the 25% tax free)

then it’s a bit of basic maths - do you have a full state pension at 67? What is your current level of household expenditure? Will you still have a mortgage by then or is it/will it be paid off? Do you have a cash cushion outside of pensions for car/boiler replacement? What are your expectations for retirement- lots of travel? Purchase of a camper van?

working out the answers - including whether you see your expenditure flat over your retirement or very high spending from 57-67 (as you are replacing lost income but not entitled to state pension, dropping from 67- 75 or 80 but replaced with state pension, then continuing at a lower level after 80 or so? What about potential care costs? Do you want to leave or gift some or happy to spend the lot?

and then a bit of straight line maths £119/£8 is 14.78 years which is your break even point very simplistically (of course this is not correct because both pensions will be index linked and you will presumably save or invest the lump sum (and this income may or may not be taxable depending where you invest it) but it gives a starting point

it’s worth getting an appointment with Pensionwise (the free Govt advice service), they are very knowledgeable and helpful with regard to your options. They don’t give advice but I found them brilliant

There are some pensions, like NHS if you have SCS that you can retire at 55

Chewbecca · 03/09/2025 14:45

declutteringmymind · 07/08/2025 21:15

Also does a DB pension reduce the state pension?

DB pensions all have their own terms. Some do reduce when SP kicks in, others don't. You have to look at how your DB pension works, there is no single answer when it comes to DB pensions.

MikeRafone · 03/09/2025 14:55

Yellowbirdcage · 27/07/2025 18:54

Well £17k Pa isn’t enough to get you to 67. You’d need the neat £10k pa for 12 yrs from the lump sum to eke it out. So £27k for 12 years then 29k with state pension. Very approximately.
I have the same dilemma. I think I’ll take the max lump sum because my mum died very young and I’d rather have it upfront. Bird in the hand and all that.
it’s still a great pension for 55. You must be a very high earner: so young to retire. Do you have a partner? Dependent children? Plan to work doing something?

Why is the state pension £2 k per annum?

full state pension is £12,000 per annum

Chewbecca · 03/09/2025 16:24

I think they are talking about 'bridging the gap' through:
10k (from savings / lump sum DC pension) + 17k pa (from DB) for first 10 years,
Then
17k (from DB) + 12k from SP from age 67

SoManyTshirts · 03/09/2025 16:40

In a similar situation I took the highest possible pension/lowest lump sum, After some calculations involving potential inflation rates and compound interest, I decided I’d get the most money this way. So far, so good.

I already have savings and knew I wouldn’t put a lump sum to much use, but I have no problem living up to my income.

BG2015 · 03/09/2025 19:41

I've just retired and with no mortgage or other debts I've taken the smallest lump sum and largest possible pension.

Eggbaps · 06/09/2025 15:54

If this is a defined benefit pension, have you calculated how much it will reduce for taking it early? If you have other savings it often makes more sense to use them and not draw the pension until later on.

Commutation factor of 12 isn't great- is it CSP? I'd probably take the smaller lump sum.

Pleasealexa · 06/09/2025 16:07

@BeCalmHelper is your pension index linked? 12k is very difficult to live on, especially if you are single so having to pay all household costs.

AutumnAtLast0 · 06/09/2025 16:09

MaybeItWasMe · 27/07/2025 18:48

Interesting. Could you explain why please?

Show quote history

Spousal pensions for a defined benefit pension are really very poor.

So when I’m due to retire, I’m thinking that I will cash in the max lump sum because if I pop my clogs quite soon on after that, at least DH will get the benefit of a tidy amount sitting in the bank!

FinallyHere · 06/09/2025 17:05

How many years would you need to live to break even. How badly do you need the capital. Not just so easy to decide

Elektra1 · 06/09/2025 17:12

If you don’t know what type of pension you have (DC or DB) then please please get advice from a professional on different scenarios (retiring at 55/57/60, lump sum v no lump sum, etc) before making any decisions. 55 is very young to retire unless you know you have a generous pension pot and/or don’t expect to live that long.

DemonsandMosquitoes · 06/09/2025 17:19

I have NHS SCS and am going next year at 55. We are very comfortable financially already but I plan to take the bigger lump sum. Neither of my parents made 70. We plan to die with zero do want to start spending and hope to help both DC significantly too. If I’m a little short at 80, so be it.

ItsAWonderfulLifeforMe · 06/09/2025 17:20

Elektra1 · 06/09/2025 17:12

If you don’t know what type of pension you have (DC or DB) then please please get advice from a professional on different scenarios (retiring at 55/57/60, lump sum v no lump sum, etc) before making any decisions. 55 is very young to retire unless you know you have a generous pension pot and/or don’t expect to live that long.

I was just going to say this too. If you don’t know what DB and DC mean and the difference you aren’t really in any position to be making an informed choice at all

ItsAWonderfulLifeforMe · 06/09/2025 17:27

https://www.moneysavingexpert.com/savings/discount-pensions/

This might be helpful

Zanzara · 07/09/2025 05:58

You are effectively being offered an extra £9k of annual pension for a lump sum of £101k. Barring any life limiting issues, that is a bargain. At age 55 or 57 it is phenomenal.

Namechange822 · 07/09/2025 06:08

You know that you have another 8 years of work to go.

So, in your position, I would take the larger annual pension unless you have a strong reason to believe that you won’t live for at least 10 years after retiring.

I would also use the next 8 years to pay off mortgage (if you’ve still got one) and build up savings so that you’ve also got a nice nest egg for when you retire as well.