How the projections are calculated

This page sets out exactly how Retirement Wealth Check models your finances — the assumptions it makes, the tax it calculates, and the things it deliberately leaves out. If you are going to rely on a projection, you should be able to see how it was produced.

1. What the tool models

You enter what you have, what you expect to receive, and what you expect to spend. The tool then simulates each year of your retirement one at a time: growing your pots, adding your income, subtracting your spending, working out the tax due, and drawing whatever is needed to cover the gap. It repeats that until either your money runs out or you reach the age you told it to plan to.

2. Everything is in today's money

All figures are shown in real terms — today's purchasing power. Rather than showing you a pot of £400,000 in 20 years' time and leaving you to work out what that would actually buy, the tool subtracts inflation from your growth rates and shows you the answer in money you can reason about now.

The default inflation assumption is 3% a year. So an investment growing at 6.5% is modelled as growing at 3.5% in real terms. You can change the inflation assumption using the sliders in the Drawdown Tool to see how sensitive your plan is to it.

One consequence worth understanding: because everything is in today's money, your spending figure stays flat across the projection. That is not the tool forgetting about inflation — it is the tool assuming your spending rises with inflation, which keeps its real value constant.

3. How the pots grow

Cash savings, investments and your pension pot are modelled separately, each at the growth rate you set in your profile. Growth is applied at the start of each year, before any withdrawals are taken.

Because growth is already built into the simulation, interest and investment returns should not also be entered as Other Income — that would count them twice.

4. The order money is drawn from

When your income does not cover your spending in a given year, the tool draws from savings and investments first, and only touches the pension once savings are exhausted. That is a common default, and for many people it is a reasonable one: it leaves the pension invested and avoids generating taxable income before it is needed.

But it is not always the most tax-efficient order, and it is worth understanding when it is not.

The Personal Allowance — £12,570 of tax-free income a year — cannot be carried forward. If you do not use it in a tax year, it is gone. Somebody who retires at 57 with a State Pension age of 67 has ten years in which their taxable income may be close to nil, and therefore ten Personal Allowances going unused.

Once the State Pension starts, that changes sharply. At the full new rate it pays £12,548 a year, which absorbs almost the entire Personal Allowance on its own. From that point, pension withdrawals are taxed from the first pound.

So for some people in that early-retirement window, drawing taxable pension income deliberately — enough to use the Personal Allowance, but not so much as to push into the next band — and leaving ISAs and cash untouched for later can result in materially less tax paid across a retirement than the savings-first order this tool assumes.

Two things make that a decision to take advice on rather than act on:

• The Money Purchase Annual Allowance. Taking taxable income from a defined contribution pension permanently reduces what you can contribute to pensions in future — from £60,000 a year to £10,000. It is triggered by taxable drawdown, not by taking tax-free cash alone, and it cannot be reversed. If there is any chance you will return to work or resume contributions, this matters a great deal.
• It does not apply to everyone. A defined benefit pension already in payment, or any significant income in early retirement, uses the allowance up anyway. And the outcome depends on your own pot sizes, spending and timing.

This is a genuine limitation of the projection rather than a recommendation about what you should do. If your circumstances resemble the situation described above, it is worth discussing with a regulated adviser.

5. Income tax

Income tax is modelled in full rather than approximated:

• Personal Allowance of £12,570
• 20% basic rate on the next £37,700 of taxable income
• 40% higher rate above that, up to £125,140
• 45% additional rate above £125,140
• The Personal Allowance taper — the allowance reduces by £1 for every £2 of income above £100,000, disappearing entirely at £125,140. This produces the effective 60% marginal rate in that band, and the tool models it.

Couples are taxed as two individuals, not as one household. Each partner's State Pension is taxed against their own allowance and bands. Other income and pension withdrawals — where there is no separate "yours" and "theirs" figure — are divided according to the income split you set on the Household card, and each share is taxed separately. This matters: two people each receiving £20,000 pay considerably less tax than one person receiving £40,000.

6. State Pension

Your State Pension age is worked out from your date of birth and sex, following the current statutory timetable, and the income starts from that age in the projection. You can enter your own expected amount if you have a forecast — the full new State Pension is £241.30 a week, or £12,548 a year, but many people receive less depending on their National Insurance record.

7. What is deliberately not modelled

Every projection tool simplifies. These are the simplifications made here, stated plainly so you can judge whether they matter in your case.

• Capital gains tax on investments held outside ISAs. If you hold large non-ISA investments, your actual position may be slightly worse than shown.
• Tax on savings interest above the Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate). Relevant if you hold large cash balances outside ISAs.
• The 25% tax-free element of ongoing pension withdrawals. Regular drawdown is treated as fully taxable. Tax-free cash is handled only as a separate one-off amount you enter, capped at 25% of your pot. This makes the projection conservative — if you are taking withdrawals where a quarter of each is tax-free, your real tax bill will be lower than shown.
• Scottish income tax. The tool uses the rates and bands that apply in England, Wales and Northern Ireland. Scottish taxpayers face a different band structure and should treat the tax figures as indicative only.
• Investment volatility. Growth is applied as a steady annual rate. Real returns are uneven, and a poor run early in retirement damages a pot more than the same run later — this is known as sequencing risk. Use the Drawdown Tool sliders to test lower growth rates rather than relying on the central case.
• Changes to tax rules. Rates and thresholds change, usually each April. The tool uses 2026/27 figures.

8. Rates used

All figures are 2026/27 unless stated:

• Personal Allowance: £12,570
• Basic rate band: £37,700 at 20%
• Higher rate: 40% to £125,140 · Additional rate: 45% above
• Personal Allowance taper: £100,000 to £125,140
• Full new State Pension: £241.30/week (£12,548/year)
• ISA allowance: £20,000/year
• Capital Gains Tax allowance: £3,000
• Money Purchase Annual Allowance: £10,000

9. What a projection can and cannot tell you

A projection is a way of testing whether a plan is roughly sensible, and of seeing which variables matter most. It is not a forecast. Change the growth rate by one percentage point and the answer moves considerably — which is probably the most useful thing any of this can teach you.

Retirement Wealth Check is not regulated by the Financial Conduct Authority and nothing here is financial advice. For decisions that matter, speak to a regulated independent financial adviser. Free, impartial guidance is available from MoneyHelper and, if you are 50 or over, Pension Wise.