Annuity calculator 2026/27
Enter the annuity rate you have been quoted — this calculator does not quote annuity rates, and says why — and it works out the tax-free cash, the income tax on the income stacked on everything else you receive, and what the same money would do as a drawdown instead.
Calculator
The defined contribution pot you would buy the annuity with, before anything is taken out. A defined benefit (final salary) pension already pays an income and is not this.
Normally up to 25% of the pot can be taken free of income tax. It comes out first, so the annuity is bought with what is left. There is also a cash cap on it — the lump sum allowance — and this calculator does not apply that cap.
Income per year for every £100 of purchase price, as a percentage: an offer of £5,000 a year for a £100,000 purchase price is 5%.
This calculator does not quote annuity rates, and will not. An annuity rate is an insurer’s own pricing: it moves week by week with gilt yields, and it differs by your age, your health, your postcode, whether a partner’s pension is attached, whether there is a guarantee period, and whether the income rises each year. This site has no source for it, and publishing an invented or stale one would be worse than publishing nothing. So the rate is yours to enter — from a real quote, or from a comparison you are running — and that is exactly why everything below it can be relied on: the tax-free cash, the income tax, the rate on your next pound and the drawdown comparison are all arithmetic on figures this site can stand behind.
0% is a level annuity: the same cash every year, buying less each year. For an income that keeps pace with prices, set this to your inflation assumption — and enter the rate you were quoted for that shape, which will be a lower rate than a level annuity's.
State pension, a salary, rental profit, another pension — anything taxed as income in the same year.
Leave this at £0 only if it really is £0. Annuity income is taxed as earned income and stacks on top of everything else you receive, so it is charged at whatever rate your other income has already taken you to — not from scratch. The state pension alone uses most of the personal allowance for most people, and this page deliberately does not fill that figure in for you: the state pension is a benefit rate, it is not one of the figures this site checks against gov.uk, and a number typed in here would be an unverified figure sitting among verified ones. Look yours up and enter it.
The annual income is paid in 12 equal instalments. The drawdown comparison draws on the same cycle, so the two are the same cash flow.
How long the drawdown alternative has to last. It is not a life expectancy and this page does not have one — which is the whole difference between the two products.
Your assumption, not a rate this page can look up. It is applied at exactly the same rate every period, which is not how returns arrive. It has no effect on the annuity, which pays what it pays.
Charged on the value of the pot and deducted from it. An annuity has no ongoing charge you can see — the insurer's costs are already inside the rate you were quoted, which is one of the things that makes the two hard to compare.
Income tax on a pension income is devolved, so a Scottish taxpayer meets a different set of bands.
Figures are 2026/27 income tax on the annuity income, paid every month. No National Insurance is charged on a pension income, and none is shown. Emergency tax codes, the lump sum allowance, defined benefit pensions, enhanced rates for ill health, guarantee periods and survivors’ benefits are not modelled. Every calculation runs in this tab: there is no application server and no database, so nothing you type is transmitted or stored. A share link is the exception — it carries your figures in the URL. What that means.
Your annuity income after tax — and the same money as drawdown
The annuity rate above is still the 5% placeholder this page opens with. It is a round number chosen so the arithmetic below has something to work on. It is not a quote, not an average, and not a rate this site has any source for — replace it with the rate you have actually been offered and every figure on this page updates. If you were genuinely quoted 5%, this notice is the only thing on the page you can ignore.
Year one: what you get, and what the taxman takes
| Tax-free lump sum (25% of the pot) | £100,000.00 |
|---|---|
| Left to buy the annuity with | £300,000.00 |
| Income before tax, at the 5% you entered (£1,250.00 a month × 12) | £15,000.00 |
| Your other taxable income | £0.00 |
| Total taxable income for the year | £15,000.00 |
| Income tax on all of it | £486.00 |
| Of which the annuity caused (the bill with it, less the bill without it) | £486.00 |
| Annuity income after that tax | £14,514.00 |
| The same, per month | £1,209.50 |
The lump sum is not income and is not taxed, so it is not in the total above. The net figure per month is the year’s net income divided by 12; it is not what will appear on your first payment. Tax on an annuity is collected through PAYE against a tax code, and a first payment is commonly taxed on an emergency code that takes far too much and is reclaimed later. This page shows where the tax year ends up, which is what you keep.
The cap on the tax-free lump sum is not applied here. The 25.00% share is a figure this site checks against gov.uk. The cash limit on it — the lump sum allowance — is not modelled by the tax engine at all, so on a large pot the figure above can be more tax-free cash than you are actually entitled to take. Check the allowance on gov.uk before relying on it.
Where that income is taxed, band by band
| Band | Income in it | Rate | Tax |
|---|---|---|---|
| Basic rate | £2,430.00 | 20.00% | £486.00 |
Effective rate on your total income 3.24%. Rate on your next £1 20.00%.
Another £35,270 of income takes you into the Higher rate. That is a distance in gross income — what you would have to receive — not in taxable income after allowances, which is a different and usually smaller number.
What taking the tax-free cash costs you in income
| Tax-free cash taken | Cash now | Buys an annuity of | Income before tax | Income tax on it | Income after tax |
|---|---|---|---|---|---|
| 0% | £0 | £400,000 | £20,000 | £1,486 | £18,514 |
| 12.5% | £50,000 | £350,000 | £17,500 | £986 | £16,514 |
| 25% — your choice | £100,000 | £300,000 | £15,000 | £486 | £14,514 |
This is the trade every annuity purchase makes and almost no calculator shows. Giving up tax-free cash buys a larger income — but that extra income is taxable, every year, at whatever rate your other income has already taken you to, while the cash you gave up would have been free of income tax for ever. The comparison is not gross income against cash; it is the after-tax column above against the cash column. Which side of it suits you depends on what you would do with the cash, what else you are taxed on, and how long the income runs — none of which this page knows, and it does not recommend either.
The same money, drawn down instead
This part of the page is arithmetic, not a forecast. It is what would happen to £300,000.00 if it grew at exactly 5% every single month for 25 years, which nothing does. Real returns arrive in an order, and the order changes the answer — badly so once money is being withdrawn, because a poor first few years sells more of the pot to pay the same income. There is no statutory figure in this part of the calculation and nothing here has been checked against gov.uk, because a growth assumption is not the sort of thing an authority could confirm. The annuity half of the page needs no growth rate at all, which is the difference between the two products stated in one sentence.
| Year the income would first fall short | none within 25 years |
|---|---|
| Paid out of the pot over 25 years | £375,000.00 |
| Left in the pot after 25 years | £248,916.70 |
| Charges deducted from the pot over the term | −£17,531.35 |
| Paid by the annuity over 25 years, if you live that long | £375,000.00 |
On these assumptions, drawing down instead would support £20,293 a year paid in full for the whole 25 years — the equivalent of 6.76% of the purchase price, against the 5% you were quoted. The two figures are not the same kind of thing. The annuity pays for as long as you live, however long that turns out to be, and this page has no life expectancy and is not going to acquire one. The drawdown figure stops at the end of a term you typed in, and it moves every time the growth assumption moves. Neither product is recommended here over the other.
The tax treatment is identical, which is the part most people expect to differ and it does not: both are taxed as earned income, stacked on everything else, with no National Insurance on either. So the same gross income costs the same tax whichever product pays it. At the drawdown figure above the income tax would be £1,545, leaving £18,748 a year — against £14,514 from the annuity. Tax is not what separates these two products. Certainty is.
The income is level: the same £15,000.00 every year for 25 years, which buys less each year as prices rise. An annuity that rises with prices is quoted at a lower starting rate — set the escalation box above and enter the rate you were quoted for that shape. This page cannot convert one quote into the other and does not try.
What an annuity settles, and what it does not
Buying an annuity is, in almost every case, final. The purchase price has gone; there is no pot left to change your mind with, to leave to anybody, or to draw an extra amount from in a year that goes wrong. What you have bought instead is an income that cannot run out, does not depend on markets, and needs no growth assumption — which is why the annuity half of this page has none and the drawdown half is full of them. A guarantee period or a survivor’s pension changes what happens on death, and both are priced into the rate you are quoted rather than calculated here.
Two figures above are not comparable without that in mind. “Paid over 25 years” assumes you live 25 years; live longer and the annuity keeps paying while the drawdown column does not. Live less long and the opposite is true. This site publishes information, not advice — it does not know which of those applies to you, it does not recommend one product over the other, and it names no provider.
Worked example: a 2026/27 annuity from a £400,000 pot
These are the figures the calculator above loads with, so every number in this section can be checked against it without typing anything. A £400,000.00 pot, the full 25% taken as tax-free cash, an annuity rate of 5%, a level income, no other taxable income, in 2026/27.
That 5% is a placeholder, not a quote — this page does not quote annuity rates. It is a round number chosen so the example has something to work on, and it is the one figure here you should replace with your own. Everything computed from it is exact: the tax-free cash, the income tax, the rate on the next pound and the drawdown comparison are arithmetic, and the arithmetic is the part this page is for.
| Tax-free lump sum | £100,000.00 |
|---|---|
| Left to buy the annuity with | £300,000.00 |
| Income before tax | £15,000.00 |
| Income tax on it | £486.00 |
| Income after tax | £14,514.00 |
| Rate on the next £1 of income | 20.00% |
Three things in that table are worth pausing on.
- The lump sum leaves the pot before the annuity is bought. The £300,000.00 figure, not the £400,000.00 one, is what the rate is applied to. A calculator that quotes an income on the whole pot and subtracts the cash afterwards is quoting an income on money already spent.
- The tax is this low only because the other-income box is empty. Put a state pension in it and the same £15,000.00 costs more, because annuity income is stacked on top of what you already receive rather than starting again at the personal allowance. That is the single most common way an annuity quote turns out to be worth less than expected, and it is what this page is for.
- Tax-free cash is not free income given up. Taking none of it leaves £400,000 to buy with and produces £20,000 a year before tax — but £18,514 after it. Taking the full 25% hands over £100,000 in cash that is never taxed, and leaves £14,514 a year after tax. The comparison is the cash against the difference in the after-tax column, and gross figures alone cannot show it.
Methodology and sources
The rate is yours; everything else is ours
This calculator does not quote annuity rates. An annuity rate is an insurer’s own pricing. It moves with gilt yields week by week and it varies by age, health, postcode, whether a partner’s pension is attached, the guarantee period and whether the income escalates — so there is no single rate to publish, and this site has no source for any of them. A number invented here, or one that was accurate on the afternoon it was typed, would be quoted back by readers long after it stopped being true. So you supply the rate you were quoted, and the calculator does the parts that have a right answer.
The order the money moves in
Tax-free cash first: normally 25% of a defined contribution pot can be taken free of income tax, and it leaves the pot. The annuity rate is then applied to what is left, not to the pot. The annual figure that produces is divided into equal payments, and the page taxes what those payments actually come to — a whole number of pence per payment rarely multiplies back to the annual figure exactly, and the income received is the income taxed.
The tax, which is where the other income matters
Annuity income is taxed as earned income, and that is the fact most annuity calculators leave out: it is added to everything else taxable you receive that year and charged at whatever rates that income has already reached, rather than starting again at the personal allowance. So the annuity income and the other-income box go into the tax engine together, and the tax attributable to the annuity is measured — the bill with it, less the bill without it — rather than derived from a rate. The tax-free lump sum is not income and is not in that total.
Above £100,000 of total income the personal allowance is withdrawn at £1 for every £2 of income, so a pound of income there is taxed at its band rate and exposes another £0.50 besides. Few annuitants are in that zone on the annuity alone; some are once everything else is counted, which is the reason the engine measures rather than assumes.
No National Insurance is charged on a pension income, at any age, so none is shown.
The drawdown comparison, and what it is not
There is no statutory figure anywhere in the drawdown comparison, and nothing in it has been checked against gov.uk. The growth rate, the charge and the term are yours, and there is nothing in them an authority could confirm. It runs the same purchase price through a period-by-period schedule paying the identical income, and reports when that income would first fall short; and it solves for the largest income the pot would pay in full for the whole term, expressed as a percentage of the purchase price so it sits on the same scale as the rate you were quoted. A fixed-rate projection is not a forecast. Real returns arrive in an order and the order changes the answer, worse so once money is being withdrawn. The annuity half of this page needs no growth rate at all, which is the difference between the two products in one sentence — and neither is recommended here over the other.
Where the tax figures come from
- gov.uk — Income tax rates and allowances: current and past
- gov.uk — Tax when you get a pension
- gov.uk — Pension schemes rates and allowances
- gov.scot — Scottish income tax rates and bands
The income tax rates, thresholds and allowances this page calculates with — and the 25.00% tax-free share — were verified against gov.uk on 12 August 2026. That check covers the published figures used by the tax half of this page and nothing else. It does not verify any figure the page produces; it does not reach the drawdown comparison, which has no published figure in it; and it says nothing whatever about the annuity rate, which you supplied and which no part of this site checks. The check was carried out automatically and no named person has signed it off. Check anything that matters against gov.uk, or with an accountant or a regulated adviser.
What this calculator does not model
- Any annuity rate. Stated again here because it is the limit that matters most: guarantee periods, survivors’ pensions, enhanced rates for ill health or smoking, value protection and payment in advance or arrears all change the rate an insurer offers, and none of them is priced here. Enter the rate quoted for the shape you actually want.
- The lump sum allowance — the cash cap on tax-free cash. The 25.00% rate is in the tax engine and is verified; the cap on it is not in the engine at all. On a large pot this page shows more tax-free cash than could actually be taken.
- Emergency tax on a first payment. A provider commonly operates a month-1 code on the first payment, which takes far too much and is reclaimed afterwards. This page shows the tax-year position, not the payslip.
- Defined benefit pensions, purchased life annuities bought with money that is not pension savings (which are taxed differently), and what happens to an annuity on death.
- How long you will live. There is no life expectancy anywhere in this page, which is why the annuity and drawdown totals over a term are not the same kind of number. This is information, not advice: it recommends no product, no provider and no course of action, and no figure on it is a personal recommendation.
Nothing you type here is transmitted or stored — there is no application server and no database. A share link is the exception: it carries your figures in the URL, and opening one is an ordinary request that carries them to the host. What that means.
Annuity questions
- What annuity rate will I get?
This calculator does not quote annuity rates and cannot tell you. An annuity rate is an insurer’s own pricing: it moves week by week with gilt yields, and it varies with your age, your health, your postcode, whether a partner’s pension is attached, whether there is a guarantee period and whether the income rises each year. There is no single number to publish and this site has no source for one, so printing a figure here would be inventing it — and an invented rate gets quoted back long after it stopped being true. Get a real quote and put that figure in the box — and note that you are not obliged to buy from the provider holding your pension, so a quote is one quote rather than the rate. Everything the calculator does with the figure you enter is exact.
- How much tax will I pay on my annuity?
Annuity income bought with pension savings is taxed as earned income, so it is added to everything else you receive that year — the state pension, a salary, rental profit, another pension — and taxed at the rates that income has already reached. It does not start again at the personal allowance, which is why an annuity quote often buys less than expected. The tax-free lump sum you take first is not income and is not taxed at all. On the calculator's default figures a £400,000.00 pot with the full lump sum taken, at the 5% placeholder rate, produces £15,000.00 before tax and costs £486.00 in income tax with no other income — and more for anyone who has some. No National Insurance is charged on a pension income.
- Should I take the 25% tax-free cash before buying an annuity?
This page will not tell you which to do, but it will show you the trade, which most annuity quotes do not. Cash taken now is free of income tax for good. The larger income you would get by not taking it is taxable every year, at whatever rate your other income has already taken you to — so the comparison is the cash against the difference in the after-tax income column, not the gross one. On the default figures, taking none of the tax-free cash produces £18,514 a year after tax, and taking the full 25% produces £14,514 a year after tax plus £100,000 in hand. Which is worth more to you depends on what you would do with the cash and how long the income runs, and neither this page nor any calculator knows that.
- Is an annuity better than drawdown?
That is not a question with an answer this site can give, and any calculator that gives you one is selling something. What this page does is put the two on one scale: the same purchase price, the same income, taxed identically — because they are taxed identically, which surprises people — and it reports when a drawdown paying the annuity’s income would first fall short, and what the largest income a drawdown would pay for the whole term works out to as a percentage of the purchase price. Read those two numbers against each other and against one fact the page cannot help with: an annuity pays for as long as you live, and a drawdown figure stops at the end of a term you typed in. Longevity, health, other savings, whether you want to leave anything behind and how you would feel in a bad market year all sit outside this arithmetic. Pension Wise, the free government guidance service, is a sensible first stop, and a decision this size is worth taking to a regulated adviser.
- Does the tax treatment differ between an annuity and drawdown?
No, and that is worth knowing because most people assume it does. Both are taxed as earned income in the year they are received, both are stacked on your other income, both attract no National Insurance, and both let you take the usual tax-free lump sum first. The same gross income costs the same tax whichever one pays it. What differs is everything else — certainty, flexibility, what is left at the end, whether the money can run out — not the tax.
- Why is my annuity income lower than the quote I remember?
Three usual reasons, and this page shows all three. First, the rate is applied to the pot after the tax-free lump sum has come out, not to the whole pot. Second, the income is taxable and it stacks on your state pension and anything else, so the figure in your bank is the after-tax one. Third, an income that rises each year is quoted at a lower starting rate than a level one, and a guarantee period or a partner’s pension lowers it too — a quote for one shape is not a quote for another. Enter the rate you were quoted for the shape you actually want.
- Can I change my mind after buying an annuity?
In almost every case, no. There is a short cancellation window after purchase, but once that has passed an annuity is final: the purchase price has gone, there is no pot left to draw an extra amount from in a difficult year, and nothing to leave to anybody unless a guarantee period or a survivor’s pension was built into the contract when it was bought. That irreversibility is the reason this page is careful about what it claims and the reason it recommends nothing — it is also, viewed from the other side, exactly what the reader is buying: an income that cannot run out and needs no growth assumption.
- Does this account for inflation?
Only if you tell it to. A level annuity pays the same cash every year and buys less each year. The "income rises each year by" box is how you express an inflation-linked annuity: set it to your assumption and both the annuity and the drawdown comparison escalate together, so the comparison stays like for like. There is deliberately no "RPI-linked" option, because nobody knows what RPI will be and an option with an index’s name on it would be a fixed percentage in disguise. Remember that an escalating annuity is quoted at a lower starting rate than a level one, so change the rate as well as the escalation.
- Is any of this verified?
In part, and the parts matter. The income tax rates, thresholds and allowances, and the tax-free share of a pension pot, are checked against gov.uk and the date of that check is on the page — it covers those published figures and no result this page produces, and no named person has signed it off. The drawdown comparison uses no published figure at all: a growth rate is an assumption and a fixed-rate projection is not a forecast. And the annuity rate is not verified by anybody here, because you supplied it — which is the point. This site publishes information, not advice, and recommends no product or provider.