Updated to fiscal year 2026-27
Pension Annuity Calculator
See how much guaranteed income for life your pension pot could buy, what income tax leaves you to spend, and how it compares with keeping the pot invested.
Assumptions
- Provider's investment return
- 5.0%
- Provider's margin
- 5.0%
- Mortality basis
- ONS life tables (annuitant-adjusted)
- Payment shape
- Monthly, single life
- Cash income each year
- Value in today's money
A level annuity pays £7,525 a year for life. In today's money, at 2.5% inflation, that falls to about £4,592 by age 85.
| Year | Age | Cash income | Today's money |
|---|---|---|---|
| 0 | 65 | £7,525 | £7,525 |
| 1 | 66 | £7,525 | £7,342 |
| 2 | 67 | £7,525 | £7,163 |
| 3 | 68 | £7,525 | £6,988 |
| 4 | 69 | £7,525 | £6,818 |
| 5 | 70 | £7,525 | £6,651 |
| 6 | 71 | £7,525 | £6,489 |
| 7 | 72 | £7,525 | £6,331 |
| 8 | 73 | £7,525 | £6,176 |
| 9 | 74 | £7,525 | £6,026 |
| 10 | 75 | £7,525 | £5,879 |
| 11 | 76 | £7,525 | £5,735 |
| 12 | 77 | £7,525 | £5,596 |
| 13 | 78 | £7,525 | £5,459 |
| 14 | 79 | £7,525 | £5,326 |
| 15 | 80 | £7,525 | £5,196 |
| 16 | 81 | £7,525 | £5,069 |
| 17 | 82 | £7,525 | £4,946 |
| 18 | 83 | £7,525 | £4,825 |
| 19 | 84 | £7,525 | £4,707 |
| 20 | 85 | £7,525 | £4,592 |
| Your pension pot | £100,000 |
|---|---|
| Guaranteed income a year | £7,525 |
| Income tax a year | - |
| Net income a year | £7,525 |
Information
An annuity is the simplest answer to the hardest question in retirement: how do I turn a pot of money into an income that will not run out? You hand your pension pot (after any 25% tax-free lump sum) to an insurer, and in return they guarantee to pay you a set income every year for the rest of your life, however long you live and whatever markets do. This page quotes that income using the same mortality-based pricing the full simulator uses, so the figure is realistic, not a rule of thumb.
Why the rate is what it is. The insurer works out how much income your pot can buy from two things: how long they expect to pay you (from your age and health), and the return they can earn on your money in the meantime (linked to long-term gilt yields). An older buyer, or one in poorer health, is quoted a higher income because the money is expected to be paid out over fewer years. This is the one place where poor health pays.
Level versus rising. A level annuity gives the highest starting income but never changes, so inflation slowly erodes what it buys: the chart's today's-money line falls away over the years. An escalating or RPI-linked annuity starts lower but rises each year to protect your spending power. Neither is "right", it depends on whether you value more income now or more certainty that it keeps its value.
Why tax matters. A pension annuity is taxed exactly like the rest of your pension income: the whole amount is taxable when you receive it, at your marginal rate, on top of any other income that year. So the guaranteed income is more than the net you get to spend. This page shows both, and taxes the income on the same HMRC bands the rest of the site uses. There is no National Insurance on pension income. The full simulator lets you model an annuity, flexible drawdown, and a mix of the two side by side across your whole retirement, with your State Pension and everything else.
What's simplified. This quotes a single-life annuity (it stops when you die; a joint-life annuity that continues to a partner is a real product the full app can model). Health is offered as two tiers, standard and enhanced. The quote is a buy-now snapshot at today's rates, and other income is held flat. Everything is a projection, not a live provider quote.
FAQ
- What is a pension annuity?
An annuity is a guaranteed income for life. You hand your pension pot (after any 25% tax-free lump sum) to an insurer, and in return they pay you a set income every year until you die, however long you live. It removes two risks at once: running out of money, and markets falling. The trade-off is flexibility and inheritance: once bought, a standard annuity cannot be cashed in, and a single-life annuity stops when you die.
- Annuity or drawdown, which is better?
It is the central retirement-income decision, and there is no universal answer. An annuity gives certainty: a guaranteed income for life that a bad run of markets cannot dent. Drawdown keeps your pot invested and flexible: you can vary what you take and pass on what is left, but the pot can run out, and a poor start to retirement can drain it fast. Many people do both, annuitising enough to cover their essential bills and drawing down the rest. The full app lets you model an annuity, drawdown, and a mix of the two side by side across your whole plan.
- Level, escalating, or inflation-linked, what is the difference?
A level annuity pays the same cash amount every year, which gives the highest starting income but loses spending power to inflation, so it buys noticeably less in 20 years' time. An escalating annuity rises by a fixed 3% each year, and an inflation-linked one rises with the inflation rate you enter, so both protect your real income, but they start lower, often much lower. The chart shows the trade-off using your inflation figure: a level annuity's today's-money line falls away over time while an inflation-linked one stays flat. Change the inflation input to see how much difference your assumption makes.
- How is the today's-money value worked out?
It is your cash income deflated by the inflation rate you enter above, nothing hidden. £10,000 a year at 2.5% inflation is worth about £7,800 in today's money after 10 years, and about £6,100 after 20. That same inflation figure also sets how fast an inflation-linked annuity rises, and is what an inflation-linked quote is priced against, so one number drives every real-terms figure on the page. Set it to what you expect prices to rise by (the UK long-run average is roughly 2% to 3%).
- Can I get a higher income because of my health?
Yes. This is one of the few places where poor health pays: because the insurer expects to pay you for fewer years, a qualifying health condition or lifestyle factor (even smoking) can buy an enhanced annuity worth materially more, sometimes 20% to 40% more. It is always worth declaring your full medical history when you shop around. Set the health option above to see the difference.
- How is the annuity income taxed?
A pension annuity is taxed exactly like the rest of your pension income: the whole amount is taxable as income, at your marginal rate, on top of any other income that year (your State Pension, other pensions, earnings). There is no National Insurance on it. Enter your other income above to see the exact tax and what you keep. (A Purchased Life Annuity bought with ordinary savings is taxed differently, only part of it, but that is a separate product.)
Recent changes
-
Pension freedoms removed the effective obligation to buy an annuity, making drawdown a mainstream alternative. An annuity is now one option for a pot, not the default.
Sources
- Tax when you get a pension (GOV.UK)
- Income Tax rates and Personal Allowances (HMRC)
Disclaimer
Not financial advice. This is an illustrative quote from mortality-based pricing and today's assumed rates; a real annuity quote depends on the provider, the exact terms, your full health and lifestyle, and the rates on the day. Once bought, a standard annuity cannot usually be changed or cashed in. Consult a qualified adviser, and always shop around, before buying an annuity.
