How much annuity income does £500,000 buy in 2026?
Annuity rates are at an 18-year high. In August 2026 the average single-life level annuity rate for a healthy 65-year-old is around 7.75%, with the best buy on the open market at roughly 8.36%. Priced at age 65, a £500,000 pension pot buys a guaranteed income of about £38,750 a year (£3,229 a month) at the average rate, or up to £41,800 a year (£3,483 a month) if you shop around for the best rate. All figures are indicative, August 2026.
That guaranteed income is paid for life, no matter how long you live or what markets do. Here is what £500,000 buys across the main annuity types, priced at age 65.
| Annuity type (age 65) | Average rate | Income at average | Income at best buy |
|---|---|---|---|
| Single life, level | ~7.75% | £38,750/yr | £41,800/yr |
| Joint life (50% to spouse), level | ~6.75% | £33,750/yr | ~£36,800/yr |
| Single life, RPI-linked (starting income) | ~6.25% | £31,250/yr | ~£34,300/yr |
Joint-life rates run roughly one percentage point below single-life because the insurer may pay out over two lifetimes. Inflation-linked annuities start about 1.5 percentage points lower but rise each year, so their starting income of around £31,250 grows over time while a level annuity's £38,750 never changes.
How age changes what £500k buys
The older you are when you buy, the higher the rate, because the insurer expects to pay for fewer years. Indicative single-life level rates in August 2026:
| Age at purchase | Indicative rate | Income from £500,000 |
|---|---|---|
| 55 | ~6.6% | ~£33,000/yr |
| 60 | ~6.9% | ~£34,500/yr |
| 65 | ~7.75% | ~£38,750/yr |
| 70 | ~8.8% | ~£44,000/yr |
| 75 | ~10.3% | ~£51,500/yr |
Waiting from 65 to 70 lifts the annual income on £500,000 by more than £5,000 — though you give up five years of payments to get it. Our annuity rates by age table looks at this trade-off in detail, and you can model different pots on the annuity calculator.
Don't forget the 25% tax-free cash option
Most people don't annuitise the whole pot. You can normally take 25% of £500,000 — that's £125,000 — as a tax-free lump sum (within the £268,275 Lump Sum Allowance), then buy an annuity with the remaining £375,000. At the average 7.75% rate that produces roughly £29,050 a year plus £125,000 in cash.
On tax: annuity income is taxable like salary. If you also receive the full new State Pension (£12,548 a year in 2026/27), it uses up almost all of your £12,570 Personal Allowance, so nearly all of a £38,750 annuity is taxed — and an income of this size means part of it is likely to fall into the higher-rate band. An FCA-regulated adviser can model your exact after-tax position before you commit.
Annuity vs drawdown with £500k
The main alternative is flexi-access drawdown: take the £125,000 tax-free cash, keep £375,000 invested, and draw an income. Using a cautious 4% withdrawal rate, that's about £15,000 a year — flexible and inheritable, but not guaranteed, and a bad run of markets early on can shrink it. The annuity pays more than double that, but the income dies with you (unless you add joint cover or guarantees) and you can never change your mind.
Many retirees blend the two: annuitise enough to cover essential bills, and keep the rest in drawdown for flexibility. We compare the numbers head-to-head in drawdown vs annuity with £500k.
Guarantee periods and value protection on a £500k purchase
The single biggest objection to annuitising half a million pounds is the cliff-edge death risk: buy on Monday, die on Friday, and a plain single-life annuity keeps the lot. Two add-ons soften that cliff, and at this pot size they deserve serious thought. A guarantee period (commonly 5 or 10 years) promises the income continues to your estate for the full period even if you die early — a 10-year guarantee typically shaves only a small amount off the rate, yet on £500,000 it protects a six-figure stream of payments. Value protection goes further, returning the difference between your purchase price and the gross income already paid as a lump-sum death benefit, priced accordingly. Neither add-on turns an annuity into an inheritance vehicle, but they change the worst case from "everything lost" to "most of the purchase price accounted for".
Worth knowing on the tax side: the 25% cash you take before annuitising counts toward your £268,275 Lump Sum Allowance. A £125,000 lump sum from this pot uses under half of it, so allowance pressure only becomes a live issue if you hold substantially more pension wealth elsewhere.
A realistic buying sequence for a £500k pot
Buyers at this level tend to follow a similar path, and it's worth walking through before you request quotes. First, they confirm their State Pension position with a forecast, since that £12,548 (2026/27, full new rate) forms the guaranteed floor everything else builds on. Second, they decide the split — how much of the £500,000 buys guaranteed income and how much stays invested — because that choice drives everything downstream. Third, they gather whole-of-market quotes on identical product shapes so the comparison is clean: same age, same escalation, same spouse cover, same guarantee. Fourth, they run the health questionnaire honestly, since even mild conditions reprice the whole quote. Only then do they sign. The sequence matters because quotes are typically valid for a limited window, and chopping and changing product shape mid-process resets the comparison.
How to get the most from £500,000
- Use the open market option. You are not tied to your pension provider's rate — the gap between average (7.75%) and best buy (8.36%) is worth over £3,000 a year on £500,000.
- Declare every health condition. Smoking, diabetes, high blood pressure and other conditions can qualify you for an enhanced annuity paying meaningfully more. See our guide to health conditions that boost annuity income.
- Decide on spouse protection before you buy. A single-life annuity stops at your death; joint-life costs around £5,000 a year on £500k but protects a partner for life.
- Consider phasing. Rates rise with age, so annuitising in stages can capture higher rates later — and £500,000 is a large enough pot that comparing the best annuity rates across the whole market really matters.
With smaller pots the same mechanics apply at lower incomes — see what £250k buys or what £300k buys for comparison. Because an annuity purchase is irreversible, and £500,000 is serious money, this is one decision where speaking to an FCA-regulated adviser before you sign is genuinely worth it.