Q: If a guaranteed lifetime annuity pays $400/month more than a pension, does it make sense to take the lump sum instead of the pension and place in the annuity?
A: This is a great question.
Basically both options are considered “annuities”. If you take the pension from your company, it becomes an “annuity” that is backed by the credit of the company that you work at. If the company goes out of business, you would likely lose your pension as well.
This same concept applies to an annuity at an insurance company. If the company that you purchase the annuity with is not financially stable, and they go out of business your annuity would be at risk as well.
The difference in the credit quality of your employer and the annuity company may be the reason that the annuity company offers higher rates. Be sure to discuss this with the annuity company before you make this decision.