Welcome to the Pension Calculator
The Pension Calculator is a tool to help you work out how much retirement income you might receive from the amounts you save.
When you think about what you ought to do to provide an income in retirement, investing regularly in a pension is one of your options.
If you are employed, you should first check if your employer provides a pension scheme. Your employer might make a contribution that you wouldn't get if you took out a personal pension.
If you don't have the option to join your employer's scheme, or you are self-employed or not in employment, you could take out a personal pension, such as a stakeholder pension.
But how much should I contribute to a private pension?
This is where the Pension Calculator comes in - it can give you an estimate of the amount of pension income you could get when you retire from the level of regular contributions that you choose.
Pension estimates
The figures you see in the Pension Calculator are estimates - they are not guaranteed.
The actual pension income you receive will be affected by future changes in things like interest rates, inflation and investment growth.
This means we have to make some assumptions about the future based on what we know today.
What are these 'assumptions'?
The assumptions we have used are those specified by the FSA for use with stakeholder pensions, which are:
- Investment growth: Your pension fund will grow by 7% a year until you retire.
- Inflation: The Retail Prices Index (RPI) will rise by 2.5% a year until you retire.
- Pension fund charges: The company providing your pension will charge 1.5% of your fund for the first 10 years, and 1% thereafter.
- Income tax rebates: The Government will add a tax rebate to your contributions at the basic rate (22%), so that every £1 that goes into your fund consists of 78p from you and 22p from the Government.
- Annuity rates: When you retire your pension fund is used to buy a pension income, called an annuity. We have estimated what annuity rates might be when you retire.
- Life expectancy: The average age that people are expected to live to.
Assumptions about you
The Pension Calculator estimates also assume that:
- You keep up regular monthly payments from now until you retire.
- Each year you increase your monthly payments by a minimum of the estimated rate of inflation (2.5%).
But what will my pension income be worth by the time I retire?
Over time, inflation will reduce the buying power of money.
Because you will want some idea of what your pension will actually buy when you retire, the pension income estimates in the Calculator take inflation into account at 2.5% a year.
For example, in 20 years' time, £1,000 will buy only the same as £600 today, assuming inflation of 2.5 per cent a year.
So, the Pension Calculator works out what the real buying power of your estimated pension income will be when you retire. This is
sometimes referred to as 'today's prices'.
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Pension Calculator
