If you’ve spent years in a permanent job, you can get very used to a regular income. And if you haven’t always been in paid work, the thought of guaranteed payments dropping into your bank account in a nice, predictable way can be very appealing indeed.
That can be one of the advantages of retirement. You can combine the State Pension and your own retirement savings to create a regular guaranteed monthly income for yourself. And annuities are one of the most reliable ways of doing that.
But how much does an annuity cost? Well, there’s no simple answer to that. You have to use your pension savings to buy one, but the amount people have to spend can vary hugely.
The least you can spend on one is usually £5,000. There’s no annuity cost upper limit. And if you do buy one, you don’t have to put your whole pension pot into it.
Choosing different features when you buy an annuity will also have an impact on the regular income it provides. You might want your income to increase or to make sure that it goes to a loved one when you pass on. All that and more is entirely possible, but these options will affect the amount of income the annuity gives you. Other factors like your age, health, lifestyle and even your postcode will also make a difference.
So one answer to: “How much is an annuity?” is: “Well, what are your circumstances and how much do you want to spend on one?” But that’s not very helpful. So we’re going to give you some annuity-buying examples and show you how to explore annuity costs in more detail.
How have we created our annuity cost examples?
We’ve used our own annuity calculator to see how much different annuity spends could get you if you:
- buy your annuity when you’re 65
- want a guaranteed income for the rest of your life
- want a Guaranteed Minimum Payment Period for 10 years
- don’t go for any extra product options or benefits
All our income quotes are before tax and are based on the annuity rates in November 2023. They’re really just a starting point, to give you a general idea of how much annuities cost and the income you could receive.
You can use our annuity calculator yourself to see how other choices might work for you and when you plan to retire. For example, buying an annuity at the age of 75 might give you one and a half times more monthly income than buying it at 55.
The exact amount you’ll get will depend on your provider, your circumstances, any product options you choose and how annuity rates are doing when you buy your annuity.
What annuity will a £500,000 pension pot buy?
If you’re retiring at 65 with £500,000 in your pension pot, you could spend all of it on an annuity. But that might not be the best use of your pot. That’s because you’d miss out on taking the first 25% of it as tax-free cash. So you might want to:
- Take £125,000 tax-free
- Put £375,000 into your annuity
If you did that, you’d get about £24,000 a year for the rest of your life.
So there’s really no simple answer to questions like: “How much annuity does 500k buy?”. That’s defined by your needs and choices as much as by the size of your pension pot. And the exact amount it pays out will depend on the details we’ve listed in our “How have we created our annuity cost examples?” section above.
What annuity will a £400,000 pension pot buy?
If you’ve got £400,000 in your pension pot, you could take £100,000 of it as tax-free cash. Then you could spend £300,000 on an annuity, giving you around £19,300 a year before tax for the rest of your life.
How much can I get from an annuity with a £300,000 pension pot?
If you’ve got £300,000 in your pension pot, you could take £75,000 of it as tax-free cash. Then you could spend £225,000 on an annuity, giving you a pre-tax income of about £14,000 a year for the rest of your life.
How much annuity income does £100k buy?
A £100,000 annuity will give you a guaranteed income of around £4,700 a year for the rest of your life, after you’ve taken your tax-free cash of £25,000. It might be that you’re looking for more money over a shorter period of time though. In that case, the best way of exploring the different amounts a £100,000 annuity could pay you every month is to visit our annuity calculator. It’ll help you compare different types of annuity and see how buying a £100k annuity at different ages could affect the amount you’ll get.
How much annuity can you get for £30,000?
If you have a pension pot size of £30,000, you could take £7,500 of it as tax-free cash. This would leave you with £22,500 to spend on an annuity, giving you around £1,300 a year guaranteed income for the rest of your life.
So there’s no simple answer to questions like: “How much annuity for £30,000?”. UK people planning for retirement should know that the exact amount will depend on:
- How much you put into it
- Your age and circumstances when you buy it
- The type of annuity product you choose
- Any product options or benefits you go for
Our annuity calculator will show you what you could get and help you explore some of your options. It’ll help you move from thinking about a hypothetical annuity cost to getting actual quotes. More generally, we recommend shopping around to understand all your choices and get to know the broader annuity market.
What annuity could a smaller pension pot buy?
Your pension pot needs to have at least £5,000 in it, after you’ve taken your tax-free cash. So when you’re thinking about your retirement income, the State Pension can make a big difference to your budgeting plans. At the moment you can start getting it when you turn 66, though that’ll go up to 67 between 2026 and 2028, and eventually it will go up to 68. Your payments will reach you every four weeks.
In 2023/4, the full payment’s £203.85 a week. To get that, you’ll need to have paid National Insurance for at least 35 years. If you’ve paid it for less than that, you’ll get less. You can see what you’re in line for at the Government’s Check your State Pension forecast page.
It’s also very important to have a clear sense of how much income you’ll need. The Retirement Living Standards site will help you think through what sort of retirement lifestyle you’d like and see how much you’ll need to save to pay for it.
And make sure you understand all your retirement income choices. For example, you could opt for drawdown. It lets you take money out of your pension pot when you need it, leaving the rest still invested. But your money might run out at some point. Check out our Annuity vs Drawdown article for a comparison between the two.
If you’re not sure what’s best for you, there are many sources of advice out there. We’ve already mentioned two good starting points: