Calculate the monthly payout from a fixed annuity based on your principal, interest rate, and payout period.
An annuity calculator works out the fixed monthly payout you could receive from a lump sum, paid out over a set number of years, with the remaining balance continuing to earn interest. This is the type of calculation behind a "fixed-term annuity" — converting a lump sum (such as a pension pot) into a guaranteed regular income for a chosen period.
This calculator works out the fixed monthly payment that would exactly use up the principal (plus interest earned along the way) over the chosen payout period — the same maths used for a loan repayment, but in reverse: instead of paying down a debt, the balance pays out an income while what remains continues to earn interest.
Formula: Monthly Payout = [Principal × r] ÷ [1 − (1 + r)−n], where r is the monthly interest rate (Annual Rate ÷ 12 ÷ 100) and n is the total number of months (Payout Years × 12).
Example: A £100,000 principal at a 5% annual interest rate (example rate — enter a rate based on an actual quote) paid out over 20 years gives a fixed monthly payout of roughly £660. Over the full 20 years, this totals about £158,400 in payments from the original £100,000 — the difference reflects interest earned on the remaining balance throughout the payout period. (Note: this example is for illustration purposes only and does not represent an actual annuity quote.)
In the UK, an annuity is a financial product, typically purchased from an insurance company with some or all of a pension pot, that converts a lump sum into a guaranteed regular income — either for a fixed term or for the rest of your life (a "lifetime annuity"). Annuity rates depend on prevailing interest rates, your age, health, and the type of annuity (e.g., whether it increases with inflation or provides for a spouse after death), and rates offered by insurers can vary significantly — it's worth shopping around using the "open market option" rather than accepting your existing pension provider's rate automatically. Annuities provide certainty of income, which can be valuable for budgeting and peace of mind, but once purchased they're generally irreversible, and a fixed annuity doesn't keep pace with inflation unless you specifically choose an inflation-linked option (which typically starts at a lower initial payment). This differs from "drawdown," where your pension pot remains invested and you withdraw a flexible income — see the Retirement Calculator for a drawdown-style projection.
This calculator shows a mathematical projection based on a simple constant interest rate. Real annuity quotes from insurers are priced based on their own assumptions about future interest rates, your life expectancy (for lifetime annuities), and other factors, and can vary significantly between providers — always get an actual quote for a real decision.
A fixed-term annuity pays a regular income for a set number of years, after which any remaining value may be returned as a lump sum (depending on the product). A lifetime annuity pays a regular income for the rest of your life, however long that turns out to be, which transfers longevity risk to the insurer.
A standard (level) annuity pays the same amount each year, so its purchasing power is eroded by inflation over time. Inflation-linked annuities exist, which increase payments in line with inflation, but they typically start with a lower initial payment to reflect the insurer's additional cost of providing that protection.
The open market option is your right to shop around for an annuity from any provider, rather than automatically accepting the annuity rate offered by the pension scheme you've been saving into. Annuity rates can vary meaningfully between insurers, so comparing quotes can result in a higher income for the same pension pot.
Generally, no. Once you purchase most annuities, you exchange your lump sum for the agreed income stream and typically cannot get the lump sum back, even if your circumstances change. This is an important consideration compared to pension drawdown, which retains more flexibility.
For lifetime annuities, older purchasers (and those with health conditions that may reduce life expectancy) are often offered higher income rates, because the insurer expects to make payments for a shorter average period. This calculator doesn't factor in age or health — it's based on a fixed payout period you specify.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial or pension advice, and do not represent an actual annuity quote. Annuity rates offered by insurers depend on prevailing interest rates, your age, health, and the specific product, and vary between providers. Purchasing an annuity is generally irreversible. Always shop around using the open market option and consult a qualified financial adviser (and consider Pension Wise, the free government guidance service) before making any decisions about your pension.