Monthly pension path
Pₘ = Pₘ₋₁ × [(1 + return) × (1 − fee)]^(1/12) + contributionₘThe pension receives a smooth net monthly growth factor, then the modelled month-end contribution.
Pension Benchmark · Methodology
How the calculation works
Compare a current defined-contribution pension pot with a personalised age benchmark derived from the user's retirement-spending target, then show the contribution and time changes that could close a central-path gap.
Return to calculatorIncluded
- Current age, salary and defined-contribution pension pot
- A total gross monthly pension contribution
- A desired retirement age and annual spending target
- Cautious, central and stronger gross-return assumptions
- One annual pension fee
- Inflation-adjusted values
- A user-entered State Pension and starting age
- An illustrative drawdown rate
- A solved current-pot benchmark
- A solved monthly contribution
- Retirement two and five years later
Outside this method
- Generic salary-multiple rules
- Defined-benefit pension valuation
- Tax relief and the take-home cost of contributions
- Tax on pension withdrawals and tax-free cash
- Annuity pricing
- Return probabilities and sequence risk
- Post-retirement investment paths
- Partner finances, housing wealth, inheritance and care costs
- A personalised State Pension forecast
- Financial advice
Calculation
Core formulas
Today-money pot
Real pot = nominal pot ÷ (1 + inflation)^yearsEvery benchmark and projected pot is expressed in estimated current purchasing power.
Retirement target pot
Bridge years × min(target spending, State Pension) + max(0, target spending − State Pension) ÷ drawdown rateThe first term illustrates replacing State Pension before it begins; the second capitalises the later private-income gap.
Personalised pot needed today
Solve opening pot where central real pot = target real potThe entered monthly contribution is held in the path while a bounded bisection search solves the opening balance required now.
Required monthly contribution
Solve starting monthly contribution where central real pot = target real potThe current pot is held in the path while a second bounded bisection search solves the contribution required now.
Contribution as a share of salary
Gross annual pension funding ÷ salarySalary provides context for the contribution only; it does not determine the personalised retirement target.
Timing convention
When cash flows occur
The current pot is invested at the start. Net growth is applied monthly and the contribution enters at month end. Contributions increase at the start of each modelled year. The same calculation is repeated at the chosen retirement age and at retirement two and five years later, capped at age 75.
Limitations
What the result cannot establish
- A personalised benchmark is still highly sensitive to returns, inflation, fees, contributions, retirement age, spending and State Pension assumptions.
- The three smooth paths do not show volatility, probabilities or sequence-of-returns risk.
- The State Pension bridge does not earn post-retirement returns, and the later target does not model withdrawals dynamically.
- A fixed drawdown rate cannot establish whether income will last for life.
- The State Pension amount and age can change and should be replaced with the user's official forecast.
- The monthly contribution is treated as a gross amount reaching the pension; affordability and tax mechanics are not calculated.
- Displayed whole-pound values can differ slightly from the underlying unrounded result.
Reference tests
Numerical checks
| Case | Inputs | Expected result |
|---|---|---|
| No-growth current benchmark | Age 40; retire at 50; £120,000 target pot; £500 monthly contribution; zero return, fee, growth and inflation | £60,000 pension pot required today |
| Required monthly contribution | Age 40; retire at 50; £0 current pot; £120,000 target pot; zero return, fee, growth and inflation | £1,000 starting monthly contribution |
| Five years later | Age 40; retire at 55; £120,000 target pot; £500 monthly contribution; zero return, fee, growth and inflation | £30,000 pension pot required today |
| State Pension bridge | Retire at 65; State Pension at 67; £30,000 spending; £12,000 State Pension; 4% drawdown | £474,000 target pot: £24,000 bridge plus £450,000 later-income capital |
| Salary-independent target | Identical spending, pension and investment assumptions; salary changed | Target pot and personalised pot-needed benchmark are unchanged |
Evidence