State pensioners over 65 can get £7,880 payments on top of state pension | Personal Finance | Finance

State pensioners aged over 65 can get an extra £7,880 on average paid out to them each year – on top of their existing state pension payments from the DWP.

Annuities are a product which pensioners can buy using their private pension pot (usually built up from work earnings over your lifetime) which then takes your pension savings and converts a guaranteed annual income for a specified number of years or until you die, whichever comes first.

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.”

Annuities keep your money invested, which allows it to continue to grow, while also balancing your life expectancy against the money you put in.

A bit like life insurance but in reverse, annuities weigh up your age, lifestyle and health factors to determine how much to pay out each year, as well as the amount you have in your private pension. Generally, if you’re less healthy, you will actually get more per year because the provider doesn’t expect you to live for as long.

According to SharingPensions.co.uk, retirees aged 65 and over can get £7,880 per year paid out by an annuity on average, based on current rates and assuming a pension pot of £133,000 before tax with no adjustments for inflation built in.

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.”