In brief
Growth rate, inflation, and fees are the three levers that most affect long-term projections. Small differences compound significantly over a 20–30 year retirement.
In plain English
Every projection starts with three core economic assumptions: how fast investments grow, how fast prices rise, and how much is paid in charges. These are modelling inputs, not predictions. FutureClear shows the mathematical consequences of whatever assumptions are set.
Assumptions are configured at the scenario level. Multiple scenarios can be run with different assumptions to show how sensitive a projection is to each.
How FutureClear models it
Growth rate
The growth rate is the assumed annual investment return applied to SIPP, ISA, and GIA assets, expressed as a percentage. It is a real rate — the return after inflation has been subtracted. All projections are shown in today's money (real terms).
At a 4% growth rate, investments are assumed to grow by 4% per year in purchasing power. With 2.5% inflation, the equivalent nominal rate would be approximately 6.5%.
Some reference points for UK portfolios:
- Conservative (bonds/cash-heavy): 0–2% real.
- Moderate (balanced): 2–4% real.
- Growth-oriented (high equities): 4–6% real.
UK equity markets have historically returned around 4–6% real per year over long periods. Past performance does not predict future returns, and returns vary across shorter periods.
The growth rate is applied annually to asset values at the end of each year, after spending, withdrawals, and fees are deducted. In simple mode, a single line is projected. In Monte Carlo mode, the growth rate anchors the median of the log-normal return distribution.
Because the rate is already in real terms, projected balances represent purchasing power in today's money. A projected balance of £300,000 at age 80 means £300,000 in today's spending power.
Inflation
Inflation is the rate at which the general level of prices rises over time. At 3% per year, something costing £100 today costs approximately £134 in ten years.
The UK measures inflation using the Consumer Prices Index (CPI), which adjusts the State Pension and many benefits under the triple lock. The Bank of England targets 2% CPI.
Because FutureClear shows projections in today's money, inflation works as a conversion factor:
- Spending stays flat. A £30,000 annual spend remains £30,000 in every projected year — already expressed in today's money.
- CPI/RPI-linked income stays flat. Income indexed to CPI maintains its purchasing power. In real terms, this is a flat line.
- Nominal income declines. An income source with no escalation (such as a level annuity) loses purchasing power over time. In FutureClear's real-terms view, this appears as a declining line.
- Fixed-rate escalation is converted. If a DB pension escalates at 3% nominal, FutureClear converts to real growth by subtracting the inflation assumption: at 2.5% inflation, 3% nominal becomes 0.5% real per year.
Fees
The annual fee assumption is the total charge deducted from an asset's value each year, expressed as a percentage. It typically covers:
- Platform fee: 0.10–0.45%.
- Fund management charge (OCF/TER): 0.05% (passive funds) to 1.0%+ (active funds).
- Advisory fee (if applicable): 0.5–1.0%.
Total fees commonly range from 0.15% (low-cost tracker) to 1.5%+ (active funds plus adviser charges).
Even modest differences compound significantly. On a £300,000 pension growing at 5% nominal, the difference between 0.25% and 1.25% total fees produces approximately £50,000–£80,000 difference in projected fund value over 25 years, depending on withdrawal patterns.
FutureClear deducts the annual fee from each asset before applying growth, matching how fees are charged in practice.
Each asset can carry its own fee assumption in the asset register, with an optional per-scenario override. This allows comparison between a high-fee and low-fee configuration within the same projection.
Worked example
Suppose a scenario has these assumptions: 4% real growth, 2.5% inflation, 0.5% annual fee on a £200,000 ISA.
The net annual growth applied to the ISA is 4% minus 0.5% = 3.5% real. After one year, the ISA grows to £200,000 × 1.035 = £207,000 (in today's money).
Now suppose the same scenario is run with fees at 1.5% instead. Net growth becomes 4% minus 1.5% = 2.5% real. After one year: £200,000 × 1.025 = £205,000. The difference is £2,000 in year one. Over 25 years, compounding makes this gap substantially larger.
These are illustrative figures under stated assumptions — they are not a prediction of any specific outcome.
Assumptions and limitations
- The growth rate is a single figure applied to all assets in the scenario. It does not model different returns for different asset classes within the same scenario.
- Inflation is a single figure applied scenario-wide. It cannot model divergent inflation rates for different spending categories (e.g. healthcare costs rising faster than general CPI).
- Fees are deducted as a flat annual percentage. Performance-based or tiered fee structures are not modelled.
- Monte Carlo volatility is calibrated from the growth rate and a volatility assumption. It does not model correlation between asset classes.
- The model does not account for sequence-of-returns risk beyond what Monte Carlo simulation captures.