There seem to be a fair few people on UKC who understand pensions better than I do (I suspect my sister-in-law's dog might understand pensions better than I do). I'm hoping that one of you can clarify something that a pensions advisor told me the other day.
My defined benefit pension is due to start paying out next year. The trustees have written to me explaining that I can opt either to get X amount per year, or Y amount per year plus Z amount as a lump sum. The pensions advisor said that the lump sum option could be attractive because it represented a fairly generous 1:25 ratio. At the time he explained it to me it seemed to make sense, but now I can't remember what the ratio was of, or how he calculated it. And, unfortunately, he's not readily contactable at the moment to ask him to clarify (it was a free consultation and I didn't get any direct contact details for him).
When I had looked at the numbers before it seemed to me that, at current annuity rates, the lump sum Z would likely buy an annuity roughly equal to the difference between X and Y. Obviously that wasn't what he was basing his 1:25 ratio on.
If it makes any odds, or sheds any light on a possible explanation for his calculation, the lump sum would represent about 17% of the quoted total transfer value of the pension.
Any insights from the stellar financial intellects of UKC would be most welcome...
