Pension Calculator · Methodology

How the calculation works

Project a defined-contribution pension to retirement across three transparent return assumptions, translate the pot into illustrative retirement income and estimate the contribution required for a user-defined target.

Return to calculator

Included

A current defined-contribution pension pot
Employee and employer contributions as percentages of salary
Annual contribution increases
Cautious, central and stronger gross-return assumptions
One annual pension fee
Inflation-adjusted and future-pound values
A user-entered State Pension and starting age
An illustrative drawdown rate
A retirement-income target
A solved starting monthly contribution under the central assumptions

Outside this method

Defined-benefit pension valuation
Tax relief on contributions and the take-home cost
Tax on pension withdrawals
Tax-free cash and lump-sum allowances
Annuity prices
Stochastic market paths and sequence risk
Post-retirement investment growth and inflation
Partner income, housing wealth, inheritance and care costs
A personalised State Pension forecast
Pension-provider or fund recommendations

Calculation

Core formulas

Monthly pension path

Pₘ = Pₘ₋₁ × [(1 + return) × (1 − fee)]^(1/12) + contributionₘ

The pot receives a smooth net monthly growth factor, then the modelled month-end contribution.

Contribution amount

Monthly contribution = salary × (employee % + employer %) ÷ 12

The starting contribution rises once each modelled year by the selected contribution-growth assumption.

Today-money pot

Real pot = nominal pot ÷ (1 + inflation)^years

This expresses the projected future pot in estimated current purchasing power.

Illustrative private income

Annual private income = real pot × drawdown rate

This is a first-year income illustration, not a guaranteed or personalised sustainable-withdrawal recommendation.

Target pot

Bridge years × min(target income, State Pension) + (target income − State Pension) ÷ drawdown rate

The first term illustrates replacing the State Pension before it begins; the second capitalises the later private-income gap. Negative gaps are floored at zero.

Required contribution

Solve monthly contribution where central real pot = target real pot

A bounded binary search finds the starting total monthly pension contribution under the central return, fee, inflation and contribution-growth assumptions.

Timing convention

When cash flows occur

The current pot is invested at the start. Net growth is applied monthly and contributions enter at month end. Contributions increase at the start of each modelled year. Results are measured at the selected retirement age. The State Pension is added to income only from the entered State Pension age.

Limitations

What the result cannot establish

The three smooth paths do not show volatility, probabilities or sequence-of-returns risk.
The same fee and asset-return assumption are held constant through retirement even though many pensions change asset mix.
The bridge amount does not earn returns after retirement and the later capital estimate does not model withdrawals dynamically.
A fixed drawdown percentage 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 standard £60,000 annual-allowance flag does not calculate tapering, the money purchase annual allowance, carry forward or tax charges.
Displayed whole-pound values can differ slightly from the underlying unrounded calculation.

Reference tests

Numerical checks

Case	Inputs	Expected result
Pot with no growth	£100,000 current pot; 10 years; 0% return; 0% fee; no contributions; 0% inflation	£100,000 nominal and real pot
Contribution-only path	£120,000 salary; 5% employee and 5% employer; 10 years; 0% return, fee, contribution growth and inflation	£120,000 contributed and a £120,000 final pot
Income after State Pension	£100,000 real pot; 4% drawdown; £12,548 annual State Pension available at retirement	£4,000 private income and £16,548 combined annual income
Required contribution	£0 current pot; 10 years; £12,000 target; 4% drawdown; no State Pension; 0% return, fee, growth and inflation	£300,000 target pot and £2,500 total monthly contribution

Evidence

Sources

GOV.UK — The new State Pension: what you'll get GOV.UK — Check your State Pension forecast GOV.UK — Check your State Pension age GOV.UK — Pension annual allowance FCA Handbook — COBS 13 Annex 2 projection assumptions FCA — Cashflow modelling for retirement-related advice MoneyHelper — Pension calculator