State pensioners aged over 65 have been handed a £1,000 boost in Andy Burnham's first month in charge, after a surge in annuity rates lifted projected retirement payouts on top of regular state pension income.
Annuities are bought with a private pension pot, usually built up during work, and provide a guaranteed annual income until death. As life insurer LV explains: "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."
Annuity rates at 18-year high
Standard Life said annuity rates hit 7.75% in July, the highest since August 2008, rising 1.17% since April. This means a 65-year-old with a £100,000 pension pot could receive up to £7,750 a year from their annuity. The increase boosts projected lifetime payouts by £1,000 for men and £2,000 for women, Standard Life added.
Most retirees over 65 are state pensioners, though the state pension age is currently rising from 66 to 67. Private pensions can be drawn from age 55, rising to 57 in 2028.
Boost for new Prime Minister Andy Burnham
The news comes as a boost for Andy Burnham, who has pledged to honour promises to pensioners including retaining the triple lock and a tax-free Income Tax exemption, while tackling 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." He added: "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
The Tracker, developed by Standard Life, monitors current annuity rates for those annuitising at ages 60, 65 and 70, and shows total lifetime income. According to the Tracker, a healthy 65-year-old male buying an annuity in July 2026 at 7.75% could expect total lifetime income of £156,000, while a female of the same age could expect £177,000 – increases of £1,000 and £2,000 respectively.
A healthy 70-year-old buying an annuity in the same period could get a rate of 8.43%, providing total lifetime income of £135,000 for a man and £155,000 for a woman.
What to consider before buying an annuity
LV warns that annuities have downsides. Payments are subject to income tax and could affect state benefits. The product cannot be changed or surrendered later, and you could receive less than you paid depending on how long you live.
LV says: "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."
