How to get the most from an annuity calculator

Anyone approaching retirement in the UK is likely to have noticed soaring annuity rates over the past year or so. Powered by rising interest rates and gilt yields, rates have risen by almost 50% compared to 2021, as reported by Money Week.

People approaching retirement in the UK are therefore increasingly looking at the role an annuity might play in their future income. In fact, the Association of British Insurers say that the number of annuities bought by UK consumers in the first three months of 2023 showed a 22% year-on-year increase.

Pension annuities are insurance products that turn money saved in personal pension or some types of company pension scheme into regular income. They ‘lock in’ the interest rate offered by the insurance company in most cases, either for life or for the term of a fixed-term annuity. With rates near all-time high levels, it’s no surprise that sales of annuities are also at their highest level for some years.

A tool that’s found on many websites is an annuity calculator. These take details of your age and the size of your pension, and provide an indication of your expected annuity income in return.

But working out your income from an annuity is not quite as simple as using a free online calculator. The actual income you get from an annuity will likely differ from the online result, even if it’s just slightly.

Here are five tips for getting the most from an annuity calculator:

1. It’s important to check the size of your pension pot before using a calculator. If you had a statement from your pension scheme provider some months or even years ago, the actual size of your fund may be quite different today.
2. Check whether the calculator will show results from one annuity provider or a number of leading providers. Annuity rates can differ from provider-to-provider, so using a calculator from or powered by just one provider may not show your best rate.

3. If the calculator doesn’t ask for information about your health, and lifestyle choices such as smoking and drinking, you may see a result that’s below your likely income. A call to an annuity adviser or broker will establish whether you could get more income from an enhanced annuity that pays more to people with a lower than average life expectancy.
4. When you get the result from the calculator, look carefully at the wording. Is it showing you an income you can expect from a lifetime or fixed-term annuity? Is it showing you the effect that adding death benefits to your annuity would have on the income level? There are multiple types of annuity and product features, and every choice you make will affect the income level. Again, a call to an adviser or broker will mean you can get quotes for different options.
5. Remember also that inflation will erode the value in real terms of a level annuity income. Providers offer escalating annuities that start paying at a lower level, but increase each year at a fixed rate in in line with inflation. A calculator may not show you results for level and escalating annuities, so once again, talking to an adviser or broker may be a useful step in your search for a suitable annuity.

There are many annuity calculators available online for UK consumers. For example, this free annuity calculator provides results from the leading providers, with examples of both fixed term and lifetime annuities. But whichever one you choose to use, hopefully the five tips above will help you understand what to look for when investigating your potential annuity income.