What income might I get from a £250,000 pension?

A pension pot of £250,000 might sound a lot of money but it’s the sort of figure many people have in mind when they are saving for retirement.

But the size of the fund you build by the time you retire is only half the story - you need to know what level of income that gets you when you retire.

Here we’ll try to lay out in simple terms what a pot of £250,000 translates to in retirement.

How much income would it get you, what will affect that, and how can you improve your chances of a better income?

Income options

There are now several possible ways to use retirement savings to generate an income and each has different implications for the amount you’ll produce. We’re talking here about money saved and invested inside a ‘defined contribution’ pension scheme. That could include workplace schemes or a self-invested personal pension (SIPP).

These include buying an annuity - the financial product that takes your savings in exchange for a guaranteed income in return - as well as options that allow you to leave your money invested while you take income from them, including ‘drawdown’ income and lump sums.

Both drawdown and annuity options usually allow you to withdraw 25% of your pension fund tax-free (up to a limit - currently £268,275), with income tax applying on the rest of the savings. If taking lump sums, 25% of each withdrawal is tax-free with tax payable on the rest.

And remember - you don’t have to pick just one method of accessing your pension cash - these options can be blended and changed over time to maximise your income tax efficiently. An authorised financial adviser can help with that.

How much can you expect?

Annuity income works differently from the other income options because you have to give up your savings in order to buy one. Once an annuity has been purchased, it cannot be amended or stopped (outside of a cooling off period).

With a pension pot of £250,000, a tax-free amount of £62,500 could be taken and the remaining £187,500 used to buy an annuity. At current rates, the highest-paying annuity would generate an income of £10,489¹, based on a healthy individual aged 65 with a 3% increase in payments each year to mitigate inflation.

Because the price of annuities take account of your expected lifespan, people with health conditions could benefit from higher annuity rates.

To compare that with income from drawdown requires you to apply a withdrawal rate to your pension pot - the proportion which can be withdrawn each year to give you the maximum income possible while allowing your pension pot to last as long as you need it. It isn’t always easy to do because investment returns mean the value of your pot will rise and fall in ways that are not predictable. It’s also impossible to say exactly how long you will live.

Thankfully, a lot of work has been done to work out a sustainable rate of withdrawals based on analysing thousands of possible market scenarios. It has resulted in the ‘4% rule’ - the conclusion that 4% annual withdrawals, updated each year with inflation, have been likely to let your money last for at least 30 years - however this is not guaranteed^.2

In the example of a £250,000 fund, assuming £62,500 (25%) was withdrawn tax-free, the remaining £187,500 would generate a regular annual income of £7,500, based on a 4% withdrawal rate. If you were to raise your starting withdrawal rate to 5% annual income would rise to £9,375 - but obviously raising the risk that your money runs out sooner.

How much will £250k get me in retirement?

^{*Based on single-life annuity rates from HUB Financial Solutions on 12.8.2025. Healthy 65-year-old, 3% escalation, no guarantee period.}

It’s worth remembering that, while income from drawdown appears lower than that from annuities, money in drawdown remains in your ownership and is available to use as you wish, including as inheritance to pass on after you die. Money used to buy an annuity is no longer yours, although some products will guarantee benefits are paid to loved ones after you die.

Moreover, the 4% rule is a cautious estimate of sustainable withdrawals. Higher rates do raise the risk that your money will run out sooner, but only incrementally. For example, the same study² which showed 4% withdrawals being sustainable in 95% of cases also showed that 5% withdrawals were sustainable in 85% of cases.

Regular checks on your drawdown pension pot and investment strategy - particularly in the early years of retirement can help to ensure your withdrawals are sustainable.

Achieving your £250k fund - or more

The more you have saved, the better your income in retirement is likely to be. This is also subject to favorable market conditions. And the more visibility you have over your retirement saving, the more incentivised you may be to up your saving to keep things on track.

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.