Annuity Calculator United Kingdom

An annuity turns a pension pot into a guaranteed income you cannot outlive. This calculator estimates the yearly and monthly income your pot could buy at a given annuity rate. You can take the 25% tax-free lump sum first and see how much guaranteed income you give up for the cash. Use it to sense-check a quote or to plan how much secure income your savings might provide in retirement.

How the calculation works

If you take the tax-free cash, a quarter of the pot is set aside first as a lump sum. The rest is multiplied by the annuity rate to give the annual income, and that is divided by twelve for the monthly amount. A £100,000 pot at a 6 percent rate, after £25,000 of tax-free cash, leaves £75,000 to buy an annuity paying £4,500 a year, or £375 a month. Leave the cash in the pot and the full £100,000 buys £6,000 a year instead.

What the annuity rate means

The annuity rate is the income you receive each year for every 100 pounds of pot, expressed as a percentage. Rates follow long-term government bond yields, so they rise and fall with interest rates, and they depend heavily on your age: the older you are when you buy, the higher the rate, because the income is expected to be paid for fewer years. Smokers and people with certain medical conditions can qualify for an enhanced annuity that pays more, because the provider expects to pay for a shorter period.

A single rate also hides product choices. A level annuity pays the same amount every year, so it starts higher but loses purchasing power to inflation. An escalating or RPI-linked annuity starts lower and rises over time. Adding a spouse’s pension or a guarantee period lowers the starting rate, because the provider is promising to pay for longer or to more people. Enter a rate for the specific type of annuity you are pricing.

The 25% tax-free lump sum

You can normally take a quarter of a defined contribution pension as a tax-free lump sum from age 55, rising to 57 from April 2028. Taking it does not stop you buying an annuity with the rest, but it shrinks the pot that generates your guaranteed income, and because the lump sum is a fixed fraction of the pot it cuts the income by that same fraction. Whether it is the right choice depends on whether you have a use for the cash, other savings to draw on and how much guaranteed income your essential bills need. You also do not have to use the whole pot for one annuity. Some retirees buy only enough annuity to cover fixed bills and leave the rest in drawdown, which they can vary or pass on.

A worked example

Say you retire with a £100,000 pot and are offered a 6 percent rate. Take the tax-free cash first and you receive £25,000 and use the remaining £75,000 to secure £4,500 a year for life. Keep the whole pot in the annuity and your guaranteed income rises to £6,000 a year, with no lump sum. The £1,500 a year difference is the price of £25,000 in cash today, which many people accept because the cash can clear a mortgage or top up an emergency fund.

Common mistakes to avoid

The most expensive mistake is accepting your existing provider’s default quote instead of comparing every insurer through the open market option. The gap between the best and worst rate can be several hundred pounds a year for life. Many people also never mention health conditions or smoking, which can unlock a higher enhanced rate. Buyers often compare only the headline income and overlook whether the quote is level or escalating, so a higher starting figure may pay less over a long retirement. The income is also taxable, so the figure the calculator shows is before Income Tax.

How to read your result

Compare the annual income with your guaranteed outgoings, the bills you must pay whatever happens, rather than your total spending. An annuity works best covering essentials while other savings handle the rest. Compare the with-cash and without-cash figures to decide whether the lump sum is worth the permanent drop in income, and remember the State Pension usually adds a second guaranteed layer. Because the decision cannot be undone, use the estimate to frame the questions you take to real quotes.

Assumptions and limitations

This is a planning estimate, not a quote. It applies a single level annuity rate to the pot and treats the tax-free lump sum as a fixed fraction, stored as a parameter and reviewed against government guidance. It does not model inflation-linked or escalating annuities, joint-life cover, guarantee periods or enhanced rates for poor health, all of which change the income you would be offered. It also ignores the Income Tax due on the annuity income. Compare real quotes across providers and take regulated advice before committing, because a lifetime annuity cannot usually be reversed.

About This Annuity Calculator

Use this annuity calculator to get an instant, accurate estimate. The figures follow official GOV.UK guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.