Annuity Calculator — Retirement Income

An annuity is an insurance product: you hand over a lump sum from your pension and the provider guarantees a regular income for life, or for a set term. Insurers price the deal from your pot size, your age at purchase, your health and the options you pick, using actuarial life expectancy tables and current gilt yields. A larger pot, an older buyer or poorer health all lift the annual figure. The arithmetic divides the pot by an annuity factor built from those mortality tables and your chosen features. Annuities fell out of fashion after the 2015 pension freedoms: about 10% of retirees now buy one, against 90% before.

The first choice is between a single-life annuity, which pays only you, and a joint-life annuity, which keeps paying a spouse at a reduced rate, typically 50 to 66% of the original income. The second is between a level annuity, which pays a fixed amount for life, and an escalating one, which starts lower and rises each year by a fixed percentage or in line with RPI to hold off inflation across a 20 to 30 year retirement. A guarantee period of 5 or 10 years keeps payments running to your beneficiaries if you die early, at the cost of a slightly lower headline rate.

Rates in 2026 look nothing like the preceding decade and a half. After 15 years of unusually low gilt yields holding pricing down, a Bank of England base rate of 3.75% since December 2025 and 15-year gilt yields above 4.5% have transformed what insurers can offer. A 65-year-old buying a single-life, level lifetime annuity with £100,000 in May 2026 could secure £7,200 to £7,500 a year, against roughly £5,500 in 2020. Building in inflation protection, whether RPI-linked or escalating at 3%, usually cuts the starting income by 35 to 45% in return for defending its purchasing power later.

A lifetime annuity pays until you die. A fixed-term version pays a guaranteed income for 5, 10, 15 or 20 years and then returns a maturity value, which suits people wary of drawdown sequence-of-returns risk but unwilling to commit for good. Investment-linked annuities let the income vary with fund performance, trading certainty for upside. Enhanced or impaired-life annuities pay 10 to 40% more where a medical or lifestyle factor applies, such as smoking, diabetes, a heart condition, a cancer history or a high BMI, because the insurer expects to pay out over fewer years. Around 60% of buyers qualify and many never check, so use a specialist broker.

Couples should look hard at the joint-life options, which pay a surviving spouse 50, 66 or 100% of the income. A full 100% spouse pension for two partners aged 65 pays around 15% less than a single-life quote at the outset, but continues unchanged after the first death. With UK life expectancy at 82 for men and 85 for women, joint-life annuities almost always pay out more in total, and they matter most where one partner holds far more pension wealth than the other. Income paid to the survivor remains taxable in their hands.

What an annuity really buys is insurance against living a long time and running out of money. That makes it most valuable to people with no defined benefit pension behind them, those who would rather not manage investments in old age, and anyone worried that cognitive decline will make later decisions harder. Drawdown wins where a DB pension and State Pension cover the essentials, where you want to leave money to heirs, and where you can tolerate volatility, since an annuity dies with you unless it is joint-life. The crossover usually falls in the late 70s or 80s, when rates above 10% become hard to beat. Many retirees do both, annuitising enough to cover the bills and drawing down the rest. No inheritance tax falls on the annuity itself, since it is an income stream, not an asset.

Never accept your existing provider's quote without comparing it, as it is typically 10 to 30% worse than the open market. The Open Market Option, a legal right since the 1980s, lets you take the pot to any provider, and Just, Canada Life, Legal & General, Aviva and Standard Life all compete for the business. MoneyHelper, a broker or MoneySavingExpert will run the comparison, and disclosing every health and lifestyle factor, however minor, tends to improve the rate. The income is taxed through PAYE, free of tax within the £12,570 personal allowance and then at 20, 40 or 45%. Take the tax-free cash before buying, up to the £268,275 lump sum allowance introduced when the Lifetime Allowance was abolished in 2023.