To take your commutation or not: "The Dilemma"

Most approaching retirement have an idea of how much their tax-free pension commutation will be and what they could possibly spend/invest it on.

However, if financially you may not need the commutation, then the big question is: 'Do I take the commutation and have a reduced pension?' or 'Do I forgo the opportunity of taking the lump sum in favour of the higher pension?'

This dilemma has been around for many years and is likely to be around for a few more yet! We've been asked about it several times at our free evening seminars on "Preparing for your retirement", and have organised these lunchtime seminars in response.

A Solution?

Well there isn't one single solution, I'm afraid, as everyone's situation is different! However, you could start by breaking down the considerations you should be making into three areas: -

1. A financial consideration

Will you need some or all of your commutation to clear part or all of a mortgage that will still be outstanding, and/or other loans that may be still in place?

Will you need some of the commutation to help fund school or university fees?

Has some of the commutation already been 'earmarked' for an ex-spouse as part of a divorce agreement?

Are you single with dependants or are you married?

Do you have good savings/investments already?

2. Your state of health?

Are you in good health and consider that as far as you would hope, you'll live to a good old age and do well out of receiving the higher pension?

3. Are your parents still alive?

Is there any family history of premature death or does the evidence and likelihood point to living to a long life?

You should be able to answer points 2 & 3 yourself! However, for most, 'financial considerations', or 'money' is by far the biggest worry or concern for most.