Over-60s have been handed a £3,000 boost after annuity rates rose in July, increasing private pension payouts in Andy Burnham's first month as Prime Minister. An annuity is a product bought with a private pension pot that provides a guaranteed annual income for life.
According to Standard Life, annuity rates for those aged over 60 rose to 7.06% in July, up from 6.95% in April – an increase of 1.58%. This means a 60-year-old with a £100,000 pension pot could receive £3,000 more over the lifetime of the annuity, with total income rising from £170,000 to £173,000.
Rates rise for over 65s and over 70s
For those aged over 65, the annuity rate has increased by 1.17% to 7.75%. For over 70s, the rate climbed by 0.60% to 8.43%.
Life insurance firm LV explains that a pension annuity pays an income for the rest of your life. To receive one, you must be at least 55 and have at least £2,000 to invest after taking any tax-free cash.
The news is also a boost for the new Prime Minister, who has pledged to retain the triple lock and a tax-free income tax exemption while prioritising the cost of living.
Standard Life: Highest rates since 2008
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 Standard Life Tracker monitors current annuity rates across the market for those at ages 60, 65 and 70, also showing total lifetime income and how rates improve with age.
Annuity downsides to consider
LV warns that annuities are subject to tax and cannot be changed or surrendered later, so you need to be sure before proceeding. 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.”
