Annuity Calculator and Annuity Rates in UK

Annuity: A brief introduction

An annuity provides a guaranteed income to a person even after their retirement, by using the person’s pension saving or by using their private pension.Apart from annuity, there are other strategies post retirement one should take a close look at.

What is a private pension?

What is a private pension

Private pension serves as an alternative to workplace pension that provides better tax advantages when compared to workplace pension.

The two types of private pension are Self-invested personal pensions and personal pensions.

Self-invested personal pensions

Self-invested personal pensions are less controlled than personalpensions and give the user the complete freedom to place their investments wherever they want. These type of pensions are usually handled online and on other investment supermarkets. From shares, funds to investments, everything is decided by the user thus making them more responsible. Self-invested personal pensions are,thus, highly recommended for experienced users and if you are completely new to this, then its better you go with the personalpension.

Self-invested personal pensions consist of a wide range of investments, from which one can choose their desired one. The different types of investment under Self-invested personal pensions are Cash, property, Gifts, Shares, Funds, and others.

Personal pensions

A personal pension is operated by a fund manager, who takes care of the investment, tax relief and other important aspects of the pension. In this type of private pension, the user has lesser control than in a Self-invested personal pension and every decision starting from investment of money to claiming one’s tax relief is taken care of by the fund manager. The user however can choose from a range of funds such as the greater risk greater return fund or the lesser risk lesser return fund, depending on their need and requirement

What is tax relief?

What is tax relief

One can get up to 100% of their annual earnings as tax relief and if the amount exceeds the limit, then the concerned person would be asked to repay the amount by Her Majesty’s Revenue and Customs. If you want to know more about taxes then you can read our article on claiming tax refunds and income tax reliefs. For calculating annuity and taxes you need to have all the information related to your expenses and income beforehand. An accountant is the best person for solving these queries. For further information you can visit HMRC’s official website.

When and where to purchase an annuity?

Pension providers have comprehensive information regarding one’s pension pot value, different annuity rates and the different types of annuity that it offers, that they provide once the person reaches their retirement. The concerned person can either choose any one annuity offered by the pension provider or go in for a completely new one. One is completely free to choose a provider of their choice and can decide that according to their needs and requirements

The person need not necessarily purchase their annuity immediately after their retirement and it is completely up to the concerned person to get it whenever they want, once they reach their retirement.

You can always look around for quotes from pension providers out of which you can choose the one which suits your requirement and purpose. But before you do that make sure you check your current one for guaranteed annuity rate and for whether your current pension provider would charge you any extra fee for switching from one provider to another.

If you are planning on getting an adjustable income, then make sure you keep the following points in mind.

  • Always check and compare the fees between various pension providers, in order to select the ideal one.
  • Be aware of all major investment terms and conditions
  • Be aware of risks pertaining to investments before you make a decision.

Another important thing that one needs to keep in mind while choosing their annuity is that it can be chosen only once, thereby making the decision even more vital and significant. Thus before you choose your annuity, make sure you consult your pension provider as well as a financial advisor for better guidance.

Whether you choose the annuity from your pension provider or some other provider, the decision is completely yours, with no hard and fast rule of which is right and which is wrong.

Before you choose an annuity, make sure you understand the different types of annuity, in order to understand its features better.

The different types of annuities are investment-linkedannuity, enhanced annuity, escalating annuity, Single or joint life annuity, with guarantee annuity, Fixed and short-term annuity and Capital protected annuity.

Investment-linked annuity

Investment-linked annuities are annuities that offer income based on one’s investments. A minimum value is set, and the user needs to make sure that their investment doesn’t go below that. This type of annuity is sure of high risk, as one cannot guarantee their investments rates from time to time.


If you are planning on purchasing an Investment-linked annuity, then make sure you understand the concept of investments, before making your decision.

Investments are nothing but assets whose value either keeps on increasing from time to time or keeps on decreasing. These assets can be sold in future, either to generate income or to incur profits.

Investments are indeed one of the most complex concepts of all which doesn’t guarantee determined profit or loss. It is highly unpredictable and requires a solid backing.

What are peer to peer investments?

Peer to peer investments allows individuals to lend and borrow money directly without the need for banks or building societies.

This type of investment provides great rates for both the lender and for the borrower.

The process is much simpler and doesn’t require greater investments. If you are a borrower, then you have to keep in mind the amount of risk you are going to take as higher risks could result in asubsequent increase in the amount of money you would have to repay.

Enhanced annuity

An enhanced annuity is applicable for persons who have a serious medical condition or ailment such as diabetes or cancer. A valid prescription and a medical certificate are mandatory if you want to get qualified for an enhanced annuity.


As the name suggests, one’s payments increase over time unlike other annuities, where the payments are pre-decided.

Single or joint life annuity

In a single life annuity, the person receives a steady income until their death which gets ceased afterward. Thus this type of annuity is highly suitable for persons who are dependent on no one to take care of.

A joint life annuity is just the opposite of single life annuity, where the person along with their chosen beneficiary receives a steady income until their death. The person who has purchased a joint life annuity receivesa steady income until their death, which then gets passed on to their chosen beneficiary until their death. The chosen beneficiaryreceives a percentage of the purchaser’s income which might be either 50 or 100 %, which could significantly affect the purchaser’s income. Higher the percentage, lower the income for the purchaser.

With guarantee annuity

A with guarantee annuity continues to pay the income even after the holder’s death, before the stipulated guarantee time

Fixed and short-term annuity

In a fixed term annuity, a fixed amount of income is paid for a determined number of years, after which a guaranteed sum is provided, using which one can purchase a new annuity. This type of annuity is not lifelong and is valid only up to a certain period, which is decided way in advance.

In a short-term annuity, the payment is stopped once the determined period gets over or when the holder passes away.

Capital protected annuity

In a capital protected annuity, the person’s income is paid to their beneficiary after their death, who is nominated by the holderthemselves.

How much should one pay as a tax?

While taking money from one’s pension pot, one would have to pay tax on 75% of their income, while the rest 25% is left tax free.

The two factors that determine the amount of tax that one needs to pay are one’s total income and their tax rate.

One can either pay 75% and leave the rest 25% tax-free or take smaller bits and pieces of cash, for which 25% would be cash free.

What is an annuity calculator?

Annuity calculator is a device used to calculate how much income a person would obtain after purchasing an annuity. Several online websites are available which offers inbuilt annuity calculators which are highly accurate and efficient. Information pertaining to one’s age, pension pot value are all collected in order to calculate the income rate.

Here are a few factors that directly affect the income value of a person

  • The person’s age: Yes, the income rate is said to increase year after year, once the person reaches their retirement age.
  • Pension pot value at the time of purchasing the annuity: Yes, one’s pension pot value is of great importance and determines how much income the person would receive.
  • What type of annuity one chooses: Either it’s an Investment-linked annuity, Enhanced annuity, a single life annuity, joint life annuity or a with guarantee annuity.
  • The person’s medical condition.

What should one do if the employer goes out of business?

One's pension pot is highly secured and won't be lost even if the employer goes out of business as the pension is operated by the pension provider and not by the employer.

A 100% compensation of one's pension pot is also provided if the provider is unable to pay the pension. These pensions are protected by the Pension Protection Fund, where one receives up to 100% compensation if the person reaches the determined retirement age and up to 90% compensation, if the person’s age is below the determined retirement age, which is the age selected by the person receiving the pension along with their pension provider.

Can one estimate how much income they would receive?

Yes, one can estimate how much income they would receive by providing the details of how much money they have in their pension pot and at what age they would like to take their money.

What are the different annuity rates?

Annuity rates are primarily based on one’s age and here are the various annuity rates based on recent values and calculations

  • The annuity rate for a person who has opted for a single life with no guarantee annuity starts at £4,149 for persons aged 55 and £7,124, which is the maximum limit for persons aged 75.
  • If a person has chosen a single life with 5 year guarantee annuity, then the annuity rate for persons aged 55 would start at £4,146 with its maximum limit being £4,146 for persons aged 75.
  • If a person has chosen a single life. RPI with 5 year guarantee annuity, then the annuity rate for persons aged 55 would start at £2,036 with its maximum limit being £4,867 for persons aged 75.
  • The annuity rate for a person who has opted for a single life with 3% escalation and 5 year guarantee annuity would be £2,693 for persons aged 55, £3,037 for persons aged 60, £3,620 for persons aged 65, £4,123 for persons aged 70 and £5,228 for persons aged 75.
  • If a person has opted for joint life 50% with no guarantee, then the annuity rate would be £3,815 for persons aged 55, £4,222 for persons aged 60, £4,813 for persons aged 65, £5,369 for persons aged 70 and £6,330 for persons aged 75.
  • If a person has opted for joint life 50% with no guarantee and 3 % escalation, then the annuity rate would be £2,406 for persons aged 55, £2,776 for persons aged 60, £3,178 for persons aged 65, £3,655 for persons aged 70 and £4,566 for persons aged 75.

One can also find their annuity rate by entering their age and their pension pot details in any web server which provides these details.

With the invent of technology, everything has become so easy including the calculation of annuity rates, which can now be done online. But taking a decision purely based on online results are not considered ideal and might result in inaccurate rates and values. Thus always make sure that you consult a financial expert before making your final decision.

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About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.

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About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.


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