Contributed by Nicholas Galea, Financial Planner, Investment Adviser, & Insurance Broker
For many UN employees, the United Nations Pension Scheme (UNJSPF) is a cornerstone of financial security during retirement. With many of my clients working for the UN, I’ve noticed a common question that often arises when planning for retirement or considering leaving the UN: What should I do with my UN pension?
Most UN employees are aware of the standard income-for-life pension option, which provides a reliable, steady income stream in retirement. However, not many realize that they have another powerful option at their disposal: taking a lump sum of their pension and reinvesting it. In this blog post, I want to share some insights into this option and why it might be worth considering for you and your family.
Understanding the UN Pension Scheme
The UN Pension Scheme is a defined benefit plan, which means your benefits are calculated based on your final salary and years of service. This offers a great deal of security, but it doesn’t necessarily mean it’s the only choice available to you. Upon retirement or separation from the UN, you typically have three options:
1. Take the pension as an income for life.
2. Take up to one-third as a lump sum and the rest as a reduced monthly pension.
3. Take the entire amount as a lump sum (in certain cases and subject to eligibility criteria).
The Benefits of Taking the Pension as Income for Life
Opting for an income-for-life pension provides stability and peace of mind for many retirees.
Here’s why:
1. Guaranteed Payments for Life: By choosing the income-for-life option, you receive a stable, predictable monthly income for the rest of your life. This can alleviate the stress of managing investments or the fear of outliving your savings.
2. Protection Against Market Fluctuations: With an income-for-life, your pension payments are not affected by market changes. This is particularly beneficial during economic downturns when investments could lose value.
3. Survivor Benefits: The income-for-life option usually includes survivor benefits for your spouse and dependents, providing an ongoing source of income for your family after your passing.
Why Consider Taking a Lump Sum?
Choosing to receive your pension as a lump sum rather than a monthly income might seem counterintuitive at first, especially if you’re used to the idea of a guaranteed income for life. But for some, opting for a lump sum can be a smart move with long-term benefits for both you and your family. Here are a few reasons why:
1. Flexibility and Control Over Your Investments
When you take a lump sum, you gain full control over your funds. You can choose to reinvest the money in assets that align with your financial goals, whether it's in real estate, diversified portfolios, or even a business venture. This flexibility allows you to create a more tailored financial plan to suit your retirement lifestyle and risk tolerance.
2. Succession Planning and Family Security
One of the significant advantages of taking a lump sum is that it offers more flexibility in succession planning. Unlike a life pension, which typically ends with you (with partial benefits provided to a surviving spouse or dependents), a lump sum that is wisely reinvested becomes part of your estate. This means that the wealth you build can be directly passed on to your heirs, giving your family greater financial security.
3. Potential for Higher Returns
Reinvesting your lump sum opens up the potential for higher returns, depending on your risk appetite and investment strategy. By taking a proactive approach to managing your pension, you may achieve greater growth than the fixed income offered by the UN scheme. Of course, this comes with the need for careful planning and professional advice to avoid unnecessary risks.
Summary of Pros and Cons of Each Option
Option | Pros | Cons |
Income for Life | Guaranteed income, protection against market risk, survivor benefits for spouse and dependents. | Less flexibility in investment, wealth cannot be easily passed on as an estate. |
Lump Sum | Flexibility to invest, control over funds, direct succession to family. | Higher risk due to market fluctuations, requires active management and planning. |
Combination | Balanced approach with partial lump sum and steady income. | Reduced monthly pension compared to full income option, partial exposure to market risks. |
Key Considerations When Deciding Your Pension Strategy
While taking a lump sum can have substantial benefits, it’s crucial to approach this decision with a clear understanding of your financial situation and retirement goals. Here are some important considerations:
1. Do you have a clear investment strategy? If you’re considering taking a lump sum, have a solid plan for how you’ll invest or allocate these funds to achieve your financial goals.
2. What is your risk tolerance? Lump sum investments come with a higher level of market risk compared to a guaranteed pension income. Assess your risk tolerance and consult with a financial adviser to ensure your strategy matches your comfort level.
3. Do you have family members to support? A lump sum might be a smart move if you’re thinking about creating an inheritance or providing for your family in the long term.
Conclusion: Tailor Your Pension to Your Goals
The UN Pension Scheme is designed to provide financial security, but with a lump sum option, it offers more flexibility than many employees realize. If you’re approaching retirement or planning to leave the UN, take the time to explore your options and consider how a lump sum payout could benefit you and your family.
We are here to help you make informed choices about your pension and retirement strategy. Don't hesitate to reach out if you have questions or need guidance on structuring your pension plan. Feel free to share this post with your colleagues—a well-informed community is a stronger community.
This post is prepared for information purposes only and should not be interpreted as investment advice nor is it an invitation by MWC Group to any person to buy or sell any investment. MWC Group has based this post on information obtained from sources it believes to be reliable.
Manentia Wealth Consulting Group Limited is licensed and regulated by the Malta Financial Services Authority (MFSA) under the Investment Services Act to provide investment services as a Portfolio Manager and under the Insurance Distribution Act to act as an Enrolled Insurance Broker. Manentia Wealth Consulting Group Limited is a subsidiary of Manentia Wealth Consulting Group AG (Swiss company registered number: CHE-116.117.306).
MWC Group UK is authorised by the FCA FRN 973440 to provide Investment advice and portfolio management in relation to various financial instruments. It is a Branch of Manentia Wealth Consulting Group AG, which is registered with FINMA as an Insurance Broker under number 29575 and a member of PolyReg/PolyAsset as a Portfolio Manager.
Manentia Wealth Consulting Group AG is registered with FINMA as Insurance Broker under number 29575 and member of PolyReg/PolyAsset as Portfolio Manager.
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