The income £250,000 buys at today's rates
A quarter of a million pounds is close to the sweet spot where an annuity plus the State Pension covers a genuinely comfortable middle-ground retirement. Priced at age 65 in August 2026, £250,000 buys a single-life level annuity of about £19,375 a year (£1,615 a month) at the average rate of 7.75%, rising to roughly £20,900 a year (£1,742 a month) at the best-buy rate of 8.36%. Figures are indicative, August 2026 — annuity rates are currently at an 18-year high.
| Option at age 65 | Rate | Annual income | Monthly |
|---|---|---|---|
| Single life, level (average) | 7.75% | £19,375 | £1,615 |
| Single life, level (best buy) | 8.36% | £20,900 | £1,742 |
| Joint life 50%, level (average) | ~6.75% | £16,875 | £1,406 |
| RPI-linked, single (starting) | ~6.25% | £15,625 | £1,302 |
Pair the average £19,375 with a full new State Pension of £12,548 (2026/27) and total secure income comes to about £31,900 a year — just above the PLSA's "moderate" retirement standard of £31,300 for a single person. Few pot sizes map so neatly onto a recognised living standard.
What age does to a £250k annuity
Insurers price on how long they expect to pay. Indicative single-life level rates and the income they produce on £250,000:
| Age | Indicative rate | Income on £250,000 |
|---|---|---|
| 55 | ~6.6% | ~£16,500/yr |
| 60 | ~6.9% | ~£17,250/yr |
| 65 | ~7.75% | ~£19,375/yr |
| 70 | ~8.8% | ~£22,000/yr |
| 75 | ~10.3% | ~£25,750/yr |
Each five-year delay adds meaningfully to the rate — see the full annuity rates by age table — but remember delaying also means years of income foregone, and nobody refunds those.
Taking the tax-free cash first
Take the standard 25% — £62,500 — tax free and you're left with £187,500 to annuitise, which buys about £14,530 a year at the average rate alongside the lump sum. Whether the cash or the extra £4,800 of lifelong income serves you better depends on mortgages, plans and other savings; it's exactly the kind of sum where an FCA-regulated adviser earns their fee by modelling both routes.
On tax: with a full State Pension consuming nearly all of the £12,570 Personal Allowance, the annuity income is effectively all taxable at basic rate on these numbers, so budget for roughly 20% off the headline figure.
£250k: annuity, drawdown, or both?
Drawdown keeps the money invested and flexible: after the £62,500 tax-free cash, drawing a cautious 4% on the remaining £187,500 gives about £7,500 a year — under half the annuity income, but the capital stays yours and can pass to your family. The detailed comparison is in drawdown vs annuity at £200k and at £300k, which bracket this pot size.
A popular middle path with £250k is partial annuitisation: buy enough guaranteed income to cover your essential bills (often £10,000–£15,000 a year including State Pension), and leave the balance invested in drawdown. You get security on the basics and upside on the rest.
What inflation does to a level £19,375
The number on the quote is fixed forever — prices are not. If inflation ran at a moderate 2.5% a year, the purchasing power of a level £19,375 would fall to roughly the equivalent of £15,100 after ten years and around £11,800 after twenty. That erosion is the hidden price of the level annuity's higher start, and it's the strongest argument for either taking the RPI-linked option, or treating the level annuity as one layer of income alongside the triple-locked State Pension, which does keep pace. Buyers who choose level income knowingly — planning to spend more in their active first decade — are making a defensible call; buyers who simply picked the bigger number often aren't.
Phasing a £250k purchase: a worked example
Nothing forces you to annuitise the whole £250,000 on one day. Consider splitting it: annuitise £125,000 at 65, which buys about £9,690 a year at the average 7.75% rate, and hold the other £125,000 invested. At 70, annuitise the second half — at that age's indicative ~8.8% rate it would buy about £11,000 a year, assuming the invested half at least held its value. The result is roughly £9,690 a year through your late 60s stepping up to about £20,700 from 70, which happens to suit many real retirements: spending often dips as travel-heavy early years give way, then later-life care costs loom. Phasing also diversifies your rate risk — you're not betting the entire pot on one day's pricing — at the cost of five years' investment risk on the second tranche. If rates slipped back toward their old levels in the meantime, the second purchase would disappoint; that's the gamble.
Death benefits: what happens to a £250k annuity when you die
Unprotected, a single-life level annuity simply stops — a hard pill at this pot size. The standard mitigations each cost a slice of income: joint-life cover (about £2,500 a year on £250k, as above), a 10-year guarantee period (cheap, and worth up to ten years of payments to your estate), or value protection (a lump-sum death benefit of the unpaid balance of your purchase price). Compare that with drawdown, where the whole remaining fund can pass to beneficiaries. If leaving money to children ranks near the top of your priorities, that alone can justify keeping part of the £250,000 out of the annuity entirely.
Five things that change what £250,000 buys
- Shopping around — the best-buy rate pays £1,525 a year more than the average on this pot. Use the open market option; our guide to the best annuity rates explains how.
- Health and lifestyle — enhanced annuities for smokers and common conditions pay more; see the conditions that qualify.
- Joint cover — protecting a spouse at 50% costs about £2,500 a year of income on £250k.
- Inflation protection — RPI linking cuts the starting income by nearly £3,800 but defends its buying power for decades.
- Timing — rates are at an 18-year high now; whether they stay there depends on gilt yields, not predictions.
To see how income scales with pot size, compare what £100k buys and what £500k buys at the same rates.