Drawing a pension in life
Annuity calculator: your quote turned into income after tax
This tool does not guess annuity rates. Copy the rate from a quote you have received, add your other income, and see what arrives each month.
Annuity income from a pension pot
Income after tax, a month
£535
| Tax-free cash | £37,500 |
| Annuity a year, before tax | £7,875 |
| Income tax on it | £1,461 |
Rates differ by age, health and options: use a quote. A lifetime annuity stops at death unless it has a guarantee or a joint life.
An annuity turns a pension pot into a regular income, and the price of that income is the rate an insurer quotes: the yearly payment for each £100 of pot. Rates depend on age, health, the options chosen and the date of the quote, so this site publishes none; the calculator uses whatever rate you type. The income is taxed as pension income at your marginal rates for 2026/27. One option is to take 25 % of the pot as tax-free cash first, within the lump sum allowance of £268,275, and the annuity is then bought with the rest. As an illustration only, a £150,000 pot at a typed rate of 7 %, with £12,000 of other income, gives £37,500 of cash, then £7,875 a year before tax and £535 a month after £1,461 of income tax. Using the whole pot for the annuity raises the gross income to £10,500 and the monthly figure to £710, with no cash up front. At death, a joint life annuity bought together with your own is outside inheritance tax.
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
Turning a quote into the figure that matters
An annuity quote states a gross yearly income. What changes your budget is the amount left once income tax has come off, which depends on everything else you receive. The calculator needs four inputs: the pot you plan to use, the rate on the quote, your other yearly income (the State Pension, a part-time salary, rent), and whether you take the tax-free cash before buying. It then works out the tax that the annuity adds at 2026/27 rates, as set out in GOV.UK's guide to tax when you get a pension.
The same annuity at five levels of other income
The table keeps the pot at £150,000 and the typed rate at 7 %, with the tax-free cash taken first. The rate is an example chosen to show the arithmetic, not a market figure.
| Other income | Annuity a year | Extra income tax | Net a year | Net a month |
|---|---|---|---|---|
| £0 | £7,875 | £0 | £7,875 | £656 |
| £12,000 | £7,875 | £1,461 | £6,414 | £535 |
| £25,000 | £7,875 | £1,575 | £6,300 | £525 |
| £45,000 | £7,875 | £2,096 | £5,779 | £482 |
| £60,000 | £7,875 | £3,150 | £4,725 | £394 |
With no other income, part of the annuity is covered by the Personal Allowance of £12,570. When other income already uses the allowance, every pound of annuity is taxed at the basic rate or more. Someone receiving a salary as well may see a far smaller net figure than the gross quote suggests.
Cash first, or the whole pot as income
Taking the tax-free part reduces the pot that buys the annuity, so the yearly income is lower, but the cash itself is not taxed. Using the whole pot gives a larger annuity, all of it taxable. Which suits a household depends on what the cash is for and on the tax band the income falls in. The calculator's last switch shows both, and the tax-free lump sum page covers the cap.
When the annuitant dies
What happens to the payments depends entirely on the contract chosen at purchase, so the first step is to ask the provider what would be paid after death, for how long and to whom. On the inheritance tax side, section 150A(6) of the Inheritance Tax Act lists excluded benefits, and one of them is a dependant's or nominee's annuity bought together with the member's own lifetime annuity. A joint life annuity of that kind is not part of the estate for deaths from 6 April 2027, when unused pension money otherwise joins it.
The income tax on what a survivor receives follows the age of the member at death. GOV.UK explains that annuity payments to a beneficiary are usually tax free when the member died under 75, and taxed as the beneficiary's income at 75 or over. HMRC's technical note adds a practical point for executors: once pension funds have been used to buy an annuity from an insurer, they are no longer available to pay inheritance tax under a payment notice.
The excluded benefits guide lists what else stays out of the estate, and the drawdown calculator prices the alternative of keeping the pot invested and drawing from it. This page gives figures, not a recommendation: a regulated financial adviser looks at annuity options for a real case.