Why assumptions matter
In brief: Your projection is only as good as its assumptions. Growth rate, inflation, and fees are the three levers that most affect long-term outcomes — small differences compound significantly over a 20-30 year retirement.
Every projection starts with three core economic assumptions: how fast your investments grow, how fast prices rise, and how much you pay in charges. These are not predictions — they are modelling inputs. FutureClear shows the mathematical consequences of whatever assumptions you set.
These assumptions are configured at the scenario level. You can run multiple scenarios with different assumptions to see how sensitive your projection is to each.
Growth rate
What it represents
The growth rate is the assumed annual investment return applied to your SIPP, ISA, and GIA assets, expressed as a percentage. It is a real rate — it represents the return after inflation has been subtracted. All projections in FutureClear are shown in today's money (real terms).
For example, if you set a 4% growth rate, that means your investments are assumed to grow by 4% per year in purchasing power. If inflation were 2.5%, the equivalent nominal (before-inflation) rate would be approximately 6.5%.
Reasonable ranges
Growth rate assumptions vary by asset allocation and time horizon. Some reference points:
- Conservative (bonds/cash-heavy): 0–2% real. Appropriate for portfolios with low equity exposure or where capital preservation is the priority.
- Moderate (balanced): 2–4% real. A commonly used central assumption for a diversified multi-asset portfolio.
- Growth-oriented (high equities): 4–6% real. Reflects historical long-run equity returns above inflation, but with significant year-to-year variability. Not appropriate as a single-point assumption for portfolios in or near drawdown without also running Monte Carlo analysis.
UK equity markets have historically returned around 4–6% real (after inflation) per year over long periods, though past performance does not predict future returns and returns vary enormously across shorter periods.
How it feeds into the projection
The growth rate is applied annually to the asset values at the end of each year, after all spending, withdrawals, and fees have been deducted. In simple mode (fixed return), a single line is projected. In Monte Carlo mode, the growth rate anchors the distribution of simulated returns — it is the median of the log-normal return distribution used to generate random scenarios.
Because the growth rate is already in real terms, the projected asset values represent purchasing power in today's money. A projected balance of £300,000 at age 80 means £300,000 in today's spending power — you do not need to mentally discount for inflation.
Inflation
What inflation is
Inflation is the rate at which the general level of prices rises over time. When inflation is 3% per year, something that costs £100 today will cost approximately £103 next year, £109 in three years, and £134 in ten years.
For retirement projections, inflation matters because most people need to spend more money in future years to maintain the same standard of living. A £30,000 annual spending target that feels comfortable at age 60 may feel stretched at age 80 if prices have risen significantly.
UK inflation context
The UK measures inflation primarily using the Consumer Prices Index (CPI), which is the government's official measure used to adjust State Pension and many benefits under the triple lock.
- Bank of England target: 2% CPI.
- Historical average: UK CPI has averaged approximately 2–3% over the past 30 years, though it rose sharply in 2022–23 before returning toward the 2% target.
- RPI (Retail Prices Index): An older measure that typically runs 0.5–1% above CPI. Still used in some defined benefit pension schemes and index-linked gilts.
How inflation feeds into the projection
Because FutureClear shows all projections in today's money (real terms), inflation works differently than you might expect:
- Spending stays flat. A £30,000 annual spend remains £30,000 in every projected year. This does not mean prices are frozen — it means the projection is already in today's money. £30,000 at age 80 buys the same basket of goods as £30,000 today.
- CPI/RPI-linked income stays flat. A State Pension or DB pension linked to CPI maintains its purchasing power by definition. In real terms, this is a flat line — the same amount every year. This is correct: a CPI-linked pension is designed to keep pace with prices.
- Nominal income declines. An income source with no escalation (e.g. a level annuity) loses purchasing power over time. In FutureClear's real-terms view, this appears as a declining income — which accurately reflects the erosion of its buying power.
- Fixed-rate escalation is converted. If a pension provider tells you your DB pension escalates at 3% per year, that is typically a nominal rate. FutureClear converts this to real growth by subtracting the inflation assumption: with 2.5% inflation, 3% nominal escalation becomes 0.5% real growth per year.
The inflation assumption is therefore a conversion factor — it bridges between the nominal rates you may receive from pension providers and the real-terms projection. It does not directly inflate spending or asset values.
What happens if inflation is higher than assumed
A higher inflation assumption means:
- Nominal escalation rates (e.g. a 3% fixed pension) produce lower real growth (less purchasing power gain per year)
- Level (non-escalating) income loses purchasing power faster
- CPI/RPI-linked income is unaffected — it maintains purchasing power by definition
It is useful to run scenarios with different inflation assumptions — for example, a central 2.5% case and a higher 4% case — to see how sensitive your non-indexed income is to price changes.
Fees
What fees represent
The annual fee assumption is the total annual charge deducted from an asset's value each year, expressed as a percentage. It typically includes:
- Platform fee: Charged by your investment platform for custody and administration. Common range: 0.10–0.45%.
- Fund management charge (OCF/TER): The ongoing charge for the funds you are invested in. Common range: 0.05% (passive/tracker funds) to 1.0%+ (active managed funds).
- Advisory fee (if applicable): If you use a financial adviser who charges a percentage of assets under management. Common range: 0.5–1.0%.
Total fees commonly range from about 0.15% (low-cost tracker in a bare platform) to 1.5%+ (active funds plus adviser charges).
Why fees compound significantly
Even modest differences in annual fees have a substantial long-term impact because the fee is deducted from a potentially growing balance every year.
As an illustration: on a £300,000 pension growing at 5% nominal, the difference between a 0.25% total fee and a 1.25% total fee produces a difference of approximately £50,000–£80,000 in projected fund value over 25 years, depending on withdrawal patterns.
FutureClear deducts the annual fee from each asset before applying growth, mirroring how fees are charged in practice.
Per-asset fee overrides
You can set the fee assumption individually per asset in your asset register, and optionally override it for a specific scenario. This lets you compare scenarios with and without a high-fee fund, or model the effect of switching providers.
Changing assumptions in a scenario
To adjust the growth rate, inflation rate, or fee assumptions:
- Open the scenario and navigate to Assumptions or Economic Settings.
- Adjust the relevant values.
- Re-run the simulation to see the updated projection.
Changes to scenario assumptions do not affect other scenarios or your underlying asset register.