Updated: June 21, 2019

How much annuity can I buy?

Think an annuity is the right option for your retirement? Find out how much you could buy with your income in this guide

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: June 21, 2019

Planning your retirement income is an important detail that everyone must face, even if your pension and annuity purchases seem too complicated to contemplate!

We know that it’s not always easy to understand what you need to do to ensure retirement is a time when you can reap the rewards of your years of hard work. That’s why we get lots of enquiries from people looking to and planning for the future, and we’ve already helped with many pensions questions and queries.

Annuities is a topic that’s popular with our clients, and to help make the details of how much annuity you can buy with your pension pot clearer, we’ve written this article.

In it we’ll discuss:

How much annuity can I buy?

Buying an annuity is an option that many private pension holders take to help ensure a minimum income during retirement. An annuity can be purchased using an entire pension pot, consisting of any pensions savings and investments you have built up during your working life.

The annuity you can buy depends on:

  • The size of your pension pot
  • Your health and lifestyle
  • Whether or not you take a lump sum payment
  • Your age when you plan to begin drawing your pension
  • The type of annuity you buy

How much annuity you can buy with your pension also depends on interest rates and investment related returns. When interest rates are stable at a low level or expected to fall, then annuity rates tend to be lower as the return on investment annuities are linked to, are lower.

When interest rates are stable at a higher level or are expected to rise, then annuity rates tend to be higher.

To find out more about what annuity your pension will buy, contact us and we’ll put you in touch with the experienced pension experts we work with. They can answer all your questions about pensions and annuities and help calculate an annuity estimate for your pension pot.

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What annuity can I buy with my pension?

There are different types of annuities that you can buy with your pension. Which one you choose depends on a number of details. The different annuity options include:

  • Sole annuity – this is an annuity that only pays either a lifetime or fixed term income, only to you, the annuity holder.
  • Joint annuity – payments from this annuity will continue to be made but to your named spouse after you die, either until they die or the fixed-term ends.
  • Guaranteed annuity – this annuity pays an income for a set term, which passes onto your partner or a named beneficiary if you die before that term ends.
  • Enhanced annuity – pays a higher annuity income if you’re in ill-health or are a smoker.
  • Basic lifetime annuity – typically a sole or joint lifetime annuity, with no special elements.
  • Investment-linked annuity – this option is linked to the stock markets which means payments can rise when it performs well but fall when it doesn’t.
  • Escalating annuity – the income from this increase each year to help protect against inflation.

Each type of annuity provides different benefits, but it’s not always easy to know which one is right for your circumstances and pension pot size. An experienced pension advisor specialising in annuity purchases can help you understand which option would work best for you.

How much annuity can I get for £30,000?

For a £30,000 pension, you can take 25% tax free (£7,500) and invest the rest to get an annuity that would pay £1,200 per annum (at the time of writing (May 2019) and according to the government calculator).

If you choose not to take your tax-free cash, your monthly income would rise, but by how much, depends on the interest rate backdrop and also your provider.

How much annuity can I get for £50,000?

If you have a pension of around £50,000, or are predicted to when you retire, you could buy an annuity that pays £2,000 per year throughout your life. That’s quite an improvement on the annuity you could get for a £30,000 as it works out at around £166 per month.

How much annuity can I get for £60,000?

Even if your pension is just £10,000 more at £60,000, for that your annuity could rise to annual income of £2,400.

Again, if you opt to take your annuity income when you are older than 65 and don’t choose a lump sum, your annual income would rise again.

How much annuity can I get with £100,000?

For those of you with £100,000 worth of pension savings, the size of annuity you could buy becomes even more attractive; take a tax-free lump sum of £25,000 and an annual income of £4,000, or over £300 per month.

Again, if you choose to begin receiving the income from your annuity after the age of 65 and without taking a lump sum, you could over £5,000 per year, or over £400 per month. To find out what annuity a £200,000 pension could buy, take a look at our article.

How much annuity can I buy with my £250,000 pension pot?

If you’ve saved towards your pension throughout your working life and have invested well enough to raise a pension pot of £250,000 then the retirement rewards could prove impressive.

You could buy an annuity that pays an annual income of £10,000.

For those of you who prefer to begin receiving your annuity income from a later age without taking a lump sum, then that annual income rises to over £1,000 per month. If your pension pot is a little higher at £300,000, details of what annuity you could buy can be found.

What annuity will I get with a £500,000 pension?

For most of us, it wouldn’t be easy to amass a pension of £500,000, but if you did, then your retirement could be very comfortable indeed. Your annuity purchase could give you an annual income of £20,000, or over £1,600 per month.

But, if you choose to forgo the lump sum and also take your annuity when you’re older than 65, then your monthly income could be in excess of £2,000 per month.

Of course, these calculations are basic estimates and aren’t a guaranteed income or lump sum for your annuity purchase and retirement. The payment terms of each annuity differs as it depends on a variety of details, many of which are personal to you, the pension holder.

Speak with a pension about how much annuity you can buy

If you’re interested in finding out more about what annuity your pension pot will buy you for your retirement and need some advice on your options, you should speak with an expert. Call Online Money Advisor today on 0808 189 0463 or make an enquiry here.

Then, just sit back and relax while we do all the hard work of finding the advisor with the right experience for your specific needs.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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