National Savings and Investments will launch one and three-year bonds, available to retirees, from next January.
Available to those over 65, NS&I will issue up to £10bn through a one year bond expected to pay 2.8 per cent and a three year bond paying 4 per cent with an investment limit of £10,000 per bond.
It means up to one million bonds will be available.
Final details including rates will be confirmed in the 2014 Autumn Statement.
Interest on the bonds will be taxed in line with an individual’s usual income tax rate.
Chancellor George Osborne said: “Many pensioners have seen their incomes fall as a consequence of the low interest rates that Britain has deliberately pursued to support the economy. It is time Britain helped them out in return so we will launch the new pensioner bond paying market leading rates.”
He added that rates will be “much better than anything equivalent in the market today.”
Plan Money director Peter Chadborn says: “It is the kind of item in a budget that looks great at first glance but when you do the sums the benefit to pensioners is fairly limited.”