Lump Sum Payment definition

A single payment of money rather than a series of payments made over time. When provided to pay for an asset or service, the lump sum payment will typically be lower than paying a series of payments because the entirety of the funds is being paid upfront.

Lump sum payments are often discussed in relation to pension funds, whereby in the UK retirees can take 25 percent of their pension pot in a tax-free lump sum payment. The rest of the pension pot is then used to buy an annuity, which provides a regular (i.e. non lump sum payment) monthly income for the rest of the person’s life.

In the United States, lump sum payments are sometimes used as an incentive for early retirement – the company will offer more or the whole pension pot to the employee in a lump sum payment.

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