Simple UK Annuity Calculator

Annuity Calculator Explainer

This guide explains what an annuity is, how rates are set, the main choices you have to make, how the income is taxed, and how to interpret the results from the calculator above.

What is an annuity?

An annuity is a product you buy from an insurance company with some or all of your pension pot.

In exchange for that lump sum, the insurer pays you a guaranteed income, either for the rest of your life (a lifetime annuity) or for a set number of years (a fixed-term annuity).

The defining feature is certainty: once it is set up, the income is contractually guaranteed and does not depend on investment markets.

That certainty is the trade-off.

Unlike pension drawdown, where your money stays invested and can grow (or fall), a standard lifetime annuity cannot usually be changed or cashed in once it starts. You are exchanging flexibility and the chance of growth for a dependable income you cannot outlive.

Why annuity rates are high in 2026

Annuity rates are driven largely by the yields on long-dated government bonds, known as gilts.

When insurers can earn more from gilts, they can afford to pay you a higher income. Because interest rates and gilt yields rose sharply from late 2021 onwards, annuity rates climbed with them and have stayed near multi-decade highs through 2026.

In practical terms, a healthy 65-year-old buying a single-life level annuity can currently secure an income of roughly 7.5% to 7.9% of their pot each year from the best providers, meaning around £7,700 a year for every £100,000.

Only a few years ago, at the 2021 lows, the same pot would have produced little more than £4,500. That is a transformational difference over a long retirement.

The flip side is that rates move daily and could fall if the Bank of England cuts the base rate.

Nobody can time it perfectly, but the current environment is a markedly better one for annuity buyers than the previous decade.

How your age affects the rate

The older you are when you buy, the higher your annuity rate.

This is simply because the insurer expects to pay you for fewer years, so it can afford a larger annual amount.

A 75-year-old will be offered a noticeably higher rate than a 60-year-old for the same pot.

This is also why some people choose to delay buying an annuity, or buy in stages, though delaying means going without that guaranteed income in the meantime and carries the risk that rates fall.

The big choices: level versus rising income

When you buy, one of the most important decisions is whether your income stays flat or increases over time.

A level annuity pays the same amount every year for life.

It gives you the highest starting income, but its buying power is steadily eroded by inflation. Over a 25- or 30-year retirement, that erosion can be severe.

An escalating annuity rises each year, either by a fixed percentage (commonly 3%) or in line with inflation (RPI-linked).

It starts considerably lower, typically 30% to 45% below a level annuity, but the income grows to protect your purchasing power.

Whether this is worth it depends on how long you expect to live and how worried you are about inflation: it can take many years for a rising annuity to catch up with the total paid by a level one.

The calculator lets you switch between level, RPI-linked and 3% escalating so you can see the difference in starting income directly.

Single life or joint life?

A single-life annuity pays you for as long as you live and then stops. A joint-life annuity continues to pay an income, often 50% of the original, to your spouse or partner after you die. B

ecause it potentially pays out for longer, the joint-life starting income is lower than a single-life one.

If you have a partner who would rely on this income, joint life provides valuable security.

If you are single, or your partner has their own adequate pension provision, single life maximises your own income. The calculator includes a 50% joint-life option so you can weigh up the cost of that protection.

Guarantee periods and value protection

A standard worry about annuities is dying soon after buying one and “losing” the rest of the pot.

A guarantee period addresses this: if you choose, say, a five-year guarantee and die in year two, the income continues to be paid to your estate for the remaining three years.

Guarantee periods reduce the income only very slightly, which is why many people add one. The calculator includes a five-year guarantee toggle so you can see its small effect.

The 25% tax-free lump sum

Before buying an annuity, you can normally take up to 25% of your pension pot as a tax-free lump sum, known as the pension commencement lump sum.

You then use the remaining 75% to buy the annuity. This is subject to an overall lump sum allowance of £268,275 for most people.

Taking the tax-free cash reduces the pot available to generate income, so your annuity income falls accordingly, but the lump sum itself is yours to spend, save or invest with no tax to pay.

The calculator handles this automatically: tick the box and it sets aside 25%, then bases your income on the rest.

How annuity income is taxed

This is the part people often overlook.

Your annuity income is taxable in exactly the same way as a salary or any other pension income.

It is added to your other taxable income for the year, and taxed at your marginal rate under the normal income tax bands.

This matters because the State Pension usually uses up most or all of your personal allowance first.

So even if your annuity on its own looks like it would be tax-free, in practice much of it may be taxed at 20% or more once it sits on top of your State Pension and any other income.

The calculator asks for your other taxable income precisely so it can show you a realistic after-tax figure rather than a misleadingly high gross one.

Enhanced annuities: get a quote if your health is not perfect

If you smoke or have a health condition such as diabetes, high blood pressure, heart problems, or a high BMI, you may qualify for an enhanced annuity that pays a higher income.

The logic is the same as age: the insurer expects to pay out for fewer years, so it offers more.

Depending on the condition, enhancements can range from a few percent to 40% or more, which can make an enormous difference over retirement.

It is always worth disclosing your full health and lifestyle details when getting quotes. The calculator includes an enhanced toggle, but it applies only a flat illustrative uplift; your actual enhancement could be much larger.

Shop around: the Open Market Option

You are never obliged to buy your annuity from your existing pension provider, and the difference between the best and worst rates on the market can be substantial.

This right to shop around is called the Open Market Option, and using it is one of the simplest ways to boost your retirement income.

A whole-of-market broker or adviser can compare every provider and check whether you qualify for enhanced rates. If you have an older pension, it is also worth checking whether it carries a valuable guaranteed annuity rate.

Is an annuity right for you?

An annuity is not the only option. Many people use pension drawdown, where the pot stays invested and you take income flexibly, or a combination of the two: an annuity to cover essential bills and drawdown for everything else.

Annuities suit people who value certainty, want to remove investment risk, and worry about running out of money.

Drawdown suits those who want flexibility, the potential for growth, and the ability to leave the pot to their heirs. There is no single right answer, and the best choice depends on your circumstances, your other income, your health and your attitude to risk.

How to use the calculator

Enter your pension pot and your age, choose whether your income stays level or rises, and pick single or joint life.

Add your other taxable income so the tax is calculated properly, and use the toggles for the tax-free lump sum, a guarantee period, or an enhanced rate.

The calculator shows your tax-free lump sum, the amount left to buy the annuity, the rate applied, and your guaranteed income both gross and after tax, monthly and annually. Adjust the options to see how each choice changes your income.

A final word

Annuity rates in this calculator are indicative, modelled on current best-buy figures and interpolated by age.

Real quotes vary every day with gilt yields and differ between providers, so treat the output as a guide to what is achievable rather than a binding offer.

Because buying a lifetime annuity is usually a permanent, one-off decision, it is well worth taking advantage of the government’s free Pension Wise service, and ideally speaking to a regulated financial adviser, before you commit.

This article is for general information only and does not constitute financial or tax advice. Annuity rates and tax rules can change.