Annuity Calculator: Estimate the Income Your Pension Pot Could Buy

Use the annuity calculator

Enter your pension pot and the annuity rate you have been quoted in the tool above. It returns an estimated annual and monthly income so you can see, in seconds, roughly what your savings would buy as a guaranteed income for life.

What an annuity actually is

An annuity is an insurance product you buy with some or all of your pension pot. In return for a lump sum, the provider promises to pay you a set income, usually for the rest of your life. Once you have bought it, that income is contractually guaranteed, no matter how long you live or what happens to the stock market. That certainty is the whole point: you are trading a pot that could run out for an income that cannot.

The trade-off is flexibility. In most cases you cannot change your mind, take the money back as a lump sum, or pass the remaining pot to your family in the way you could with a drawdown arrangement. So the decision is less about which is mathematically optimal and more about how much you value a wage you can never outlive versus keeping your money invested and accessible.

How annuity income is worked out

The maths behind the headline figure is simple, even if the pricing behind the scenes is not. The core formula is:

Annual annuity income = Pension pot used to buy the annuity × Annuity rate

The annuity rate is a percentage the insurer quotes you, and it does the heavy lifting. A rate of 5% means that for every £100,000 you hand over, you receive £5,000 a year. That rate is not fixed by the government and it is not a tax figure. It is set by each provider and moves with long-term interest rates (specifically gilt yields), your age, your health, and the shape of annuity you choose. Because rates are market-driven, two people with identical pots can be quoted very different incomes on the same day.

To turn the yearly figure into a monthly one, divide by twelve:

Monthly income = Annual annuity income ÷ 12

Several factors push your personal rate up or down:

• Your age. The older you are when you buy, the higher the rate, because the income is expected to be paid for fewer years.
• Your health and lifestyle. Smokers and people with qualifying medical conditions can often get an enhanced annuity paying a noticeably higher income, because the provider expects to pay it for a shorter period. Always declare health and lifestyle details honestly when you get quotes.
• Single or joint life. A joint-life annuity keeps paying a surviving spouse or partner after you die, so the starting income is lower than a single-life one.
• Level or escalating. A level annuity pays the same amount every year. An escalating annuity starts lower but rises each year (for example in line with inflation), protecting your spending power over a long retirement.
• Guarantee periods. Adding a guarantee (say, payments continue for at least five years even if you die early) trims the rate slightly.

Single vs joint, level vs escalating

These two choices shape the income more than almost anything else, so it is worth being clear about them before you use the annuity calculator on real quotes.

Single life vs joint life

A single-life annuity pays only you and stops when you die. It gives the highest starting income. A joint-life annuity continues paying a percentage (commonly 50% or 100%) to your partner after your death. The income starts lower in exchange for that protection. If you have a spouse or partner who would struggle financially without your pension income, the lower joint-life figure is often money well spent.

Level vs escalating (inflation-linked)

A level annuity looks generous on day one because the starting income is higher. But its buying power erodes every year that prices rise. An escalating annuity starts lower and increases annually, so it holds its value better over a twenty or thirty year retirement. There is no universally right answer; it depends on whether you want more money now or more protection later.

How the annuity calculator works

The annuity calculator keeps things deliberately straightforward so you can compare scenarios quickly. It takes the pot you intend to use, multiplies it by the annuity rate you enter, and shows the resulting annual and monthly income. By changing the rate, you can model the difference between a single-life level annuity (higher rate) and a joint-life escalating one (lower rate) without needing a separate quote for each.

One important point: many people take their 25% tax-free lump sum first and buy an annuity with the rest. If you plan to do that, enter only the amount left after the lump sum, not the whole pot. The calculator works on whatever figure you give it, so feeding it the full pot when you have already earmarked a quarter for cash will overstate your income.

Worked example: Margaret, 66, with a £200,000 pot

Margaret is 66 and has a defined contribution pension worth £200,000. She is married and wants security rather than the hassle of managing investments in her seventies. Here is how she might use the annuity calculator.

First, Margaret takes her 25% tax-free lump sum:

• Tax-free lump sum = £200,000 × 25% = £50,000
• Pot left to buy an annuity = £200,000 − £50,000 = £150,000

She has been quoted a single-life level annuity rate of 6%. Plugging that in:

• Annual income = £150,000 × 6% = £9,000 a year
• Monthly income = £9,000 ÷ 12 = £750 a month

Margaret then checks a joint-life option that would keep paying her husband 50% after she dies. That quote comes in lower, at 5.2%:

• Annual income = £150,000 × 5.2% = £7,800 a year
• Monthly income = £7,800 ÷ 12 = £650 a month

So the protection for her husband costs Margaret about £1,200 a year of starting income. Seeing the two figures side by side is exactly the kind of decision the annuity calculator is meant to help with. The rates used here are illustrative, not quotes; your own rate depends on the day, the provider and your circumstances.

How annuity income is taxed in the UK

This is the part people most often get wrong. The 25% lump sum is normally tax-free, but the annuity income itself is taxable as ordinary income, in exactly the same way as a salary or the State Pension. It sits in the non-savings, non-dividend slice of your income, so it uses the standard Income Tax bands.

For 2026/27, the Personal Allowance is £12,570, meaning the first £12,570 of your total taxable income is tax-free. Above that, the rates for England, Wales and Northern Ireland are:

Your annuity income stacks on top of any other taxable income, such as the State Pension or a defined benefit pension. If Margaret's £9,000 annuity sits on top of, say, a State Pension that already uses part of her Personal Allowance, more of the annuity could be taxed at 20% than she expected. It is the total of all your taxable income that decides which bands apply, not the annuity in isolation. You can confirm the current bands on the gov.uk guide to tax on private pensions.

Scotland is different

If you are a Scottish taxpayer, your annuity income is taxed using the Scottish Income Tax bands, which have more rates and different thresholds than the rest of the UK. The Personal Allowance is still £12,570 UK-wide, but the rate you pay above it differs. If you live in Scotland, work out the tax due using the Scottish bands rather than the table above. Our Scotland tax calculator handles those bands for you.

Annuity vs pension drawdown

An annuity is not the only way to take a pension. The main alternative is drawdown, where you keep your pot invested and draw an income from it as you choose. Drawdown offers flexibility and the chance for your remaining pot to grow and pass to family, but it carries investment risk and the real possibility of running the pot dry if you withdraw too much or markets fall.

An annuity removes both that flexibility and that risk: the income is fixed and guaranteed, but you give up access to the capital. Many people now do a bit of both, using an annuity to cover essential bills and drawdown for the rest. If you want to model the flexible-income route, compare your figures with our pension drawdown calculator, then look at the bigger picture with the retirement calculator.

Tips to get more from your annuity

• Shop around, every time. You are not obliged to buy your annuity from the provider you saved with. Using the open market option to compare quotes can lift your income meaningfully. Never accept the first offer without checking others.
• Declare your health. If you smoke or have a medical condition, an enhanced annuity could pay materially more. Providers only know if you tell them, so complete the health questionnaire fully.
• Think about inflation. A level annuity that looks fine at 66 can feel thin at 86. Weigh up whether an escalating option suits a long retirement.
• Protect your partner. If someone relies on your income, price up a joint-life version before defaulting to single-life for the higher headline figure.
• Mind your tax. Take the 25% lump sum tax-free where it makes sense, and remember the income that follows is taxable at your marginal rate.

Common mistakes to watch for

• Using the whole pot in the calculator after taking cash. If you have already taken your 25% tax-free lump sum, only the remainder buys the annuity. Enter that smaller figure or you will overstate your income.
• Assuming the income is tax-free. Only the lump sum is. The regular annuity payments are taxed as income, and if they push your total income into the higher-rate band, part of it is taxed at 40%.
• Forgetting the State Pension stacks on top. Your tax band is set by all your income combined. A modest annuity can still be partly taxed once the State Pension is added in.
• Picking single-life by accident. The default highest-income option leaves a surviving partner with nothing. Make that an active choice, not an oversight.
• Ignoring Scotland's bands. Scottish taxpayers face different rates, so a calculation built on the rest-of-UK table can be wrong for them.
• Treating an illustrative rate as a quote. Annuity rates change daily and vary by provider and health. Use the tool to explore scenarios, then get real, personalised quotes.

This annuity calculator and the figures above are estimates for general guidance only and are not personal tax or financial advice. For a decision this permanent, consider speaking to a regulated adviser, and you can get free, impartial guidance from the government-backed MoneyHelper service on guaranteed retirement income.

Who should use this calculator

An annuity converts a pension pot into a guaranteed income for life. This estimates that income and lets you compare single-life against joint-life cover, which is the decision that matters most for couples — a single-life annuity pays more but stops entirely on death, potentially leaving a surviving partner with nothing.

The most under-used feature of the market is the enhanced annuity. Health conditions, smoking, high blood pressure and even a postcode can increase the rate offered, sometimes substantially, because the insurer expects to pay for fewer years. Disclosing them honestly is worth real money.

What this calculator assumes

• The income is pot × annuity rate, with the option to take 25% tax-free cash first and annuitise the remainder.
• The rate reflects age, with older buyers receiving more because the expected payment period is shorter.
• A joint-life annuity pays less but continues to a surviving partner at the chosen proportion.
• Once purchased, an annuity is irreversible.

Limitations — what it does not cover

• Enhanced and impaired-life rates, which can be materially higher and require medical disclosure.
• Inflation protection. A level annuity loses purchasing power every year; an escalating one starts much lower and takes years to catch up.
• Guarantee periods and value protection, which pay out for a minimum term or return the balance on early death.
• Tax. Annuity income is taxable as earnings beyond the tax-free cash.
• Shopping around. Taking your own provider’s default offer is one of the most expensive mistakes in retirement — the open market option exists for a reason.
• Drawdown as an alternative, which keeps flexibility and inheritance but carries investment risk.

Related calculators

Plan the rest of your retirement with our other free tools. Work out the size of pot you are heading towards with the pension calculator, check whether your savings are on track using the pension pot calculator, and compare the flexible alternative with the pension drawdown calculator.