Pensions - Articles - Tax free lump sum: take it or leave it?

 Andy Zanelli, head of technical consultancy, AXA Wealth, considers some of the issues around taking the tax free lump sum from your pension.

 "The tax free lump sum is one of the real attractions of saving into a pension and many people may have it earmarked for a specific need or event like paying off the mortgage or travelling the world, but once it's spent it's gone! On the other hand, the requirement for an income once you've stopped working could last for years.

 "Unfortunately, there is no way of knowing when you retire how long you are going to continue to need an income for and as a result it is important to consider the amount of income that is being given up when you take the lump sum. If possible, get an annuity quote showing how much the lump sum would purchase - for defined benefit schemes this will probably show that it is more efficient to take income from the scheme and show up the poor commutation factors that are being used. This can then be considered in light of the retiree's income requirement and the amount needed to live on.

 "This is a real short-term versus long-term issue and deciding whether to take it or leave it needs consideration. Increasing longevity and the need for inflation-proofing mean careful planning will be a real advantage."