In case you are entitled to one or more pension funds from your previous employers, you shouldn’t be surprised if you get a letter from them offering you a lump sum for your pension. So, always make sure you do not have any frozen pension.
The new rulings allow administrators to collectively calculate the lifetime benefits with higher interest rates than previously used. This allows employers to offer smaller amounts of lump sum payout.
Many employers who look for trimming their pension obligations offer lump sum pension payouts to former as well as current employees who are just on the verge of retirement. It should however be noticed that employees who continue to work with the employer may not be eligible for lump sum payout until they retire or leave the job.
Even the pension plans that did not have any option of offering lump sum payout are now amended by employers to benefit from this new rule.
In case You Are Offered Lump Sum Payout
When you are offered lump sum payout for your pension, you as an employee gets removed from the plan. It further reduces the future insurance costs of the employer. It is necessary for the pension plan to be 80% funded if the employer wants to offer you a lump sum payment.
Pension closing plans are more attractive for companies with well funded plans. The higher the interest rates, the cheaper it gets for employers to offer lump sum payouts. So, many of the employers may want to wait until the interest rates rises a bit further before terminating their pension plans.
Weigh Your Options
If you are offered lump sum payment for your pension, take your time to weigh your options well because once you take a step forward, there’s no going back.
According to researches, when given a choice between lump sum payout and annuity, over 70% people choose hard cash in form of lump sum payouts. But with current melting market scenarios, people are not too confident about managing their money and they desire guaranteed regular income. Moreover, lump sum payment might not include the subsidized benefits that are offered by the employers to older employees as an incentive to leave or retire early. Thus only 50% individuals prefer accepting the lump sum offer.
Even if you have been offered a lump sum payout, the option of monthly annuity payable at the normal age of retirement is always open for you. With annuity plans, you will never need to worry about effectively managing your money; however there still be some risk of inflation.
Until you are a skilled investor, managing the money could be a challenge while also keeping income tax considerations in mind. To reach the best decision, you can hire an experienced financial advisory service provider who may offer free or paid assistance to manage and administer your finances.
Professional financial planners can advise you to secure your life after retirement with regular income. They may also help you to clear your doubts and help you understand your rights based on special circumstances you are into.