Investment calculator — methodology

The period step, the two rate bases, the three kinds of fee, and why a fixed-rate projection is not a forecast.

This calculator projects a pot forward. It applies no tax of any kind, uses no rate, threshold or allowance published by government, and therefore has no gov.uk sources to cite and no verification stamp to carry. What it has instead is a set of conventions that most calculators leave unstated, and the arithmetic those conventions produce.

This page carries no “verified against HMRC guidance” stamp, and it should not. There are no tax rates, thresholds or allowances in this calculator — nothing published by government goes into it. The only claim it makes is an arithmetic one: given the numbers you entered and the conventions stated on the page, the schedule is what those inputs compound to. That is checkable, and the year-by-year table is there so you can check it.

A fixed-rate projection is not a forecast. Nothing grows at the same rate every year. Real returns arrive in an order, and the order matters — the same average return produces different outcomes depending on when the good and bad years fall, especially once money is being withdrawn. Treat the output as what a constant rate would have produced, which is a useful way to compare two contribution plans and a poor way to predict a balance.

The period step

The projection runs in periods, not years. A period is a month, a quarter or a year depending on the contribution frequency you chose, and every step is integer pence arithmetic — there is no floating-point balance that drifts over 360 months.

balance ← balance + contribution (if paid at the start of the period)
balance ← balance × (1 + periodic rate)
balance ← balance + contribution (if paid at the end of the period)
balance ← balance − fees

The two contribution lines are the same money in a different place, and the difference between them compounds. A contribution paid at the start of each period earns one extra period of growth, every period, for the whole term. Over thirty years that is not a rounding difference, and a calculator that does not tell you which one it used has not told you what it computed. The conventions panel on the calculator itself reports what the choice is worth on the numbers you actually entered, rather than quoting a percentage measured on someone else’s.

Turning an annual rate into a period rate

There are two defensible ways to do this and they do not agree, so the calculator asks which one you mean rather than picking one quietly:

nominal (annual rate ÷ periods per year):   periodic = r / n
effective (compounded to the same annual):  periodic = (1 + r)^(1/n) − 1

At 7% a year with monthly periods, the nominal basis compounds to about 7.23% and the effective basis to exactly 7%. Neither is wrong. Quoting one while the reader assumed the other is.

Fees, of which there are three kinds

Fees are not one number. The three behave differently and a projection that collapses them into a single “charge” is answering a different question:

A platform or annual management charge is a percentage of the balance, so it grows as the pot does and takes its largest bite in the final years.
A fixed fee is a flat amount per period. It dominates a small pot and becomes irrelevant to a large one.
A contribution charge is taken from money going in, so it never gets to compound at all — the most expensive kind per pound, and the one most often omitted.

Real terms

The real value of the final balance is the nominal balance deflated by inflation over the whole term:

real = nominal ÷ (1 + inflation)^years

This answers “what would that pot buy in today’s money”. It is not a second projection with a lower growth rate, and the two are not the same thing.

What it does not model

Tax of any kind. No income tax on withdrawals, no capital gains tax, no dividend tax, no ISA or pension wrapper rules.
Variable returns. One rate, every period. See the note above on why that is not a forecast.
Sequence-of-returns risk. The order returns arrive in changes the outcome and this model has no order.