What would you choose. Vesting pension vs cash out

Donald Trump

Suppose a pension has two components. Both inflation linked.


Defined contribution component "guaranteed" to double in real terms over next 25 years.

Defined benefit will pay 10% of current salary, inflation protected, from say 62.


Or else can cash out DC at current value and take a lump sum of 80% of current salary for DB component.




Ignore tax implications. (pretend there are none). Which would you choose and why? If you could split the components and choose either option separately which would you choose and why? (Assume pension assets are extremely solvent and benefits are well backed/guaranteed)

The J Stands for Jay

Donald Trump wrote: »

Suppose a pension has two components. Both inflation linked.


Defined contribution component "guaranteed" to double in real terms over next 25 years.

Defined benefit will pay 10% of current salary, inflation protected, from say 62.


Or else can cash out DC at current value and take a lump sum of 80% of current salary for DB component.




Ignore tax implications. (pretend there are none). Which would you choose and why? If you could split the components and choose either option separately which would you choose and why? (Assume pension assets are extremely solvent and benefits are well backed/guaranteed)

Ignoring the tax element is ignoring the point of pensions. To calculate this, we'd need to know the value of the DC find relative to the current salary.

I'm not sure why you're asking the question though

3DataModem

An annuity 10% of salary at retirement will cost >300% of salary at retirement.

Don't sell it for 80% of salary now unless you have a short life expectancy for some reason (cancer, couple of heart attacks, 200lbs overweight, 40-a-day smoker).