Annuity
A financial product that converts your pension pot into a guaranteed income for life. Once purchased, it cannot be reversed.
An annuity is bought from an insurance company using some or all of your pension pot. In return, the insurer pays you a fixed income every month for the rest of your life, no matter how long you live. The main types are: single life (pays only to you), joint life (continues paying your partner after you die, usually at 50-67% of the rate), level (fixed amount forever), and escalating/RPI-linked (increases with inflation but starts lower).
Annuity rates depend on your age, health, interest rates, and the type chosen. Enhanced annuities for smokers or those with health conditions can pay 20-40% more. The main alternative to an annuity is drawdown, where you keep the pot invested and withdraw as needed.
A 65-year-old with a £200,000 pot might get around £13,000/year from a single life level annuity at current illustrative rates (6.5%).
This calculator provides estimates based on 2025/26 tax rates and is not financial advice. Scottish taxpayers are subject to different income tax rates and bands. The calculations assume your salary is your only source of income and do not account for benefits in kind or other taxable income.
For personalised guidance on your pension contributions, speak to an FCA-regulated financial adviser. You can find one via Unbiased or VouchedFor.