Annuity Payout Calculator

What this calculator does

This calculator estimates the income a pension pot produces once converted into an annuity. Enter the purchase amount, an assumed annuity rate and your retirement age, and it returns the monthly income, the annual income and the total paid across the assumed horizon, plus a table splitting each payment into interest and returned capital.

It is worth being clear about the mechanism: the model amortises your premium to age 90 at the rate you enter, much like a loan schedule run in reverse. That closely resembles a guaranteed-term annuity and approximates a lifetime quote, but it is not an underwritten price from an insurer.

When to use it

The most practical use is checking a quote you have already received. Adjusting the rate until the model reproduces the quoted monthly income tells you the effective return the provider is crediting, which makes comparing offers with different guarantee periods and escalation far easier.

It is also the right tool for partial annuitisation, which is how most people now use annuities. Work out the essential spending your State Pension does not cover, then find the pot required to buy that income. Annuitising only that portion secures the floor while leaving the balance in drawdown.

Understanding the inputs

The purchase amount should be what actually reaches the annuity provider, so after taking any tax-free lump sum and after adviser charges. If you have a £400,000 pot and take the full 25 percent as cash, the premium is £300,000, not £400,000, and the income figure follows from the smaller number.

Annuity rate here works as an interest rate rather than a quoted payout percentage. Around 5 to 6 percent produces figures close to recent level single life quotes at 65. Retirement age sets when income starts, though the model always runs the horizon to 90, so buying later means fewer, larger payments.

How is this calculated?

Monthly Payout = (Premium × r) / (1 - (1+r)^-n), where r is monthly rate and n is months in retirement.

A worked example

A £250,000 premium at 65, at a 6 percent rate across the 25 years to 90, produces roughly £1,611 a month, or about £19,300 a year before tax. Over the full horizon that totals around £483,000, of which some £233,000 is interest credited on the reducing balance.

Drop the rate to 5 percent and the income falls to about £1,461 a month, so a single percentage point is worth £150 a month for life. Buying at 60 instead, which stretches the horizon to 30 years, reduces the 6 percent income to roughly £1,499 a month on the same premium.

Limitations and assumptions

This amortises a premium to a fixed age of 90, making it a projection under assumptions rather than a quotation. A real lifetime annuity pays for as long as you live, so the model understates the product's value if you reach 95 and overstates it if you die at 72. It cannot represent mortality pooling at all.

It also ignores provider expense loadings, medical underwriting and enhanced rates, joint life and guarantee period options, RPI escalation, and income tax collected through PAYE. Annuity rates move with gilt yields, so treat any figure as a snapshot and obtain live open market quotes before committing a pot you cannot recover.