How to Generate Stocks and Shares ISA Income of £7,953 a Year

Replicating the average annuity payout through Stocks and Shares ISA income is more achievable than it sounds, and the tax wrapper makes the arithmetic considerably more forgiving. According to the London Stock Exchange (LSE), Admiral Group (LSE: ADM) posted record profits of £958 million for full-year 2025, up 16% year-on-year, a result that underlines why the insurer keeps appearing on income investors’ shortlists.

The ISA advantage: why the wrapper changes the maths

The figure worth anchoring to is £7,953 — the average annual income over-65s receive from annuities, according to SharingPensions.co.uk. An annuity hands your capital to an insurer in exchange for those payments. A Stocks and Shares ISA income strategy lets you keep the capital and pass it on.

The tax difference sharpens the comparison. Annuity payments are taxable; ISA income is not. For a basic-rate taxpayer targeting £7,953 a year at a 6% dividend yield, the required portfolio inside an ISA is £110,000. Outside the ISA wrapper, the same income requires a portfolio of £132,550 once tax is accounted for. That gap of more than £22,000 is effectively the price of not using the annual £20,000 ISA allowance over time.

Please note that tax treatment depends on individual circumstances and may be subject to change. This article does not constitute tax advice; readers should seek professional guidance before making investment decisions.

The FTSE 100’s average dividend yield sits around 3.4%, so reaching a 6% portfolio yield requires selecting above-average payers without drifting into the dividend traps that litter the higher end of the yield spectrum. Using the FTSE 100’s 20-year annualised total return of 6.4% with dividends reinvested, the road to £132,550 shortens considerably for investors who start early. Compound growth is not subtle: an extra decade roughly halves the monthly contribution needed. Returns are never guaranteed, but the directional logic is durable.

Admiral’s Stocks and Shares ISA income case: the numbers behind the yield

Admiral carries a headline dividend yield of around 5.7% and is shifting how it returns capital to shareholders. From the interim 2026 dividend onwards, and subject to regulatory approval, special dividends will be replaced by share buybacks. Staff bonus schemes have been delinked from the dividend, which was the mechanical trigger for the change. The firm still intends to distribute around 90% of post-tax profits to shareholders; the mix between cash dividends and buybacks is what alters.

An analyst note published 5 March 2026, covered by Proactive Investors, suggested the new capital distribution model could trigger a sizeable share buyback. Whether that buyback materialises as announced remains contingent on regulatory sign-off, as reported by Investing.com.

The full-year 2025 dividend per share came in at 205.0p, up 7% year-on-year, according to ExDividendDate. The final dividend of 90.0p per share is due to be paid on 5 June 2026, with an ex-dividend date of 7 May 2026, per Simply Wall St.

The underlying business warrants attention alongside the yield. The H1 2025 half-year report showed group profit rising 69% to a record £521 million, with a combined ratio of 77.7% for the first half. The full-year combined ratio for 2025 settled at 80.1%, per the full-year results filing. Much of the industry operates near 100% on this measure; Admiral at 80.1% means the business keeps roughly 20p of underwriting profit on every £1 of premium written, while many rivals keep close to nothing.

Return on equity for 2025 reached 53%, which reflects both the profitability of the underwriting book and the capital-light nature of the model.

The principal risk is inflation in repair costs and parts. Car insurance is a short-tail business: policies renew annually and claims settle quickly, so Admiral can reprice its entire book roughly once a year. That agility compares favourably with life insurers, where mispriced assumptions can compound over decades. A widening cost advantage provides a buffer, but no insurer is immune to a sustained spike in claims inflation.

The investment case for using Admiral as a building block toward £7,953 in annual ISA income rests on the combination of a 5.7% yield, a structurally low cost base, and an earnings trajectory that, as of full-year 2025, remains firmly upward. The next test is whether the buyback programme, once regulatory approval is secured, is large enough to offset the reduced cash dividend in total shareholder value terms.