Older people over 60 can get £3,000 boost in July under Andy Burnham | Personal Finance | Finance

Retirees aged over 60 have been handed a £3,000 boost in Andy Burnham’s first month in charge after an increase to annuity rates which could lift private pension payouts in retirement.

Annuities are products that pensioners can buy using their private pension pot (usually built up from work), which converts their savings for retirement into a guaranteed annual income until they die.

As explained by life insurance firm LV: “A pension annuity is a lifetime annuity you can buy using the money from your pension pot. It will pay you an income for the rest of your life. To be able to receive a pension annuity, you must be at least 55 years old and have at least £2,000 to invest after you’ve taken any tax-free cash.”

According to Standard Life, annuity rates for those aged over 60 have increased this July to 7.06%, up from 6.95% in April, a boost of a bumper 1.58%.

It means that a 60-year-old with a £100,000 pension pot could receive £3,000 more over the lifetime of the annuity, up from £170,000 to £173,000.

For over 65s, the boost is 1.17%, increasing the annuity rate up to 7.75%. For over 70s, the rate has increased 0.60% to 8.43%.

The news will come as a boost to new Prime Minister Andy Burnham, who has already pledged to honour promises to pensioners such as retaining the triple lock and a tax-free Income Tax exemption, while he looks to tackle the cost of living as a priority.

Pete Cowell, Head of Annuities at Standard Life, said: “Annuity rates have reached 7.75%, the highest rates since August 2008, underlining just how much the retirement income landscape has shifted in recent years.

“At today’s rates, the time it takes to receive back your initial investment has significantly shortened. The payback period for a £100,000 annuity purchase with a rate of around 5% in 2020 would have taken around 20 years to repay. However, with today’s rates closer to 7.75%, that falls to around 13 years, depending on individual circumstances.

The Tracker, developed by Standard Life, monitors current annuity rates across the market for those annuitising at ages 60, 65, and 70. It also shows the total lifetime income from an annuity and the extent to which annuity rates improve with age.

LV says about annuities that there are some downsides. They are, like the pension pot itself, subject to tax.

They also cannot be changed or surrendered later, so you need to be sure you want one before you proceed as there’s no going back.

It adds: “The pension annuity cannot be cashed in or surrendered at any time.

“Purchasing a pension annuity is a once and for all decision. The options you select when you buy the annuity cannot be changed later on. Annuity payments are classed as income and are subject to income tax, and could affect any state benefits you claim – it is worth seeking advice from a financial professional to see what income tax you may be liable for.

“Depending on how long you live, you may receive less than you paid for your annuity.

“Ensure you outline any medical conditions you or your partner have as it may mean you receive a higher annuity income.”