In brief
Every figure on the FutureClear results page is shown in today's purchasing power. A projected £30,000 twenty years from now means £30,000 of what your money buys today, not the larger nominal cash amount that inflation would produce.
In plain English
There are two ways to express the value of money in the future. Nominal figures give you the cash amount as it would appear on a bank statement. Real figures adjust for inflation and give you the equivalent in today's purchasing power.
Both are correct, but they answer different questions. A nominal figure tells you how many pounds will be in the account. A real figure tells you what those pounds will buy at the shops.
FutureClear uses real terms throughout. This makes long projections easier to interpret — £500,000 of projected assets in 25 years' time sounds like a lot, but after inflation that may only buy what £300,000 buys today. Showing the real-terms figure removes the ambiguity.
Most pension provider illustrations use nominal figures because FCA rules prescribe the growth rates used in statutory Key Features Illustrations, and nominal presentation has become the industry default. FutureClear chooses real terms because the goal is sustainability, not the shape of a statement.
How FutureClear models it
The engine projects all cashflows, asset balances, tax, and spending in nominal terms first. It then discounts every year's figures back to today's money using the inflation rate set in the scenario's assumptions. The deflator for year n is 1 / (1 + inflation)^n.
Growth rates in FutureClear are real returns — the return above inflation. A 4% real growth rate is equivalent to roughly 6.5% nominal growth if inflation is 2.5%. You can adjust both the growth rate and inflation rate in the Assumptions section of your scenario; the two interact to determine the real terms outcome.
Spending, income, and tax thresholds all move with the same inflation assumption, so the real-terms figures represent a constant standard of living rather than a shrinking one.
Worked example
A pension provider projects a SIPP of £250,000 at age 68 under their standard illustration. FutureClear shows £152,000 for the same scenario under matching assumptions.
Both figures describe the same outcome. The provider is showing nominal cash; FutureClear is showing the same cash discounted back to today's money at 2.5% inflation over 20 years:
- Deflator:
1 / (1.025)^20≈ 0.610 - Real-terms value: £250,000 × 0.610 ≈ £152,500
The difference is not a disagreement about the outcome. It is a difference in unit.
Some providers will supply a real-terms figure on request. Where they do not, the difference between their figure and the FutureClear figure reflects the inflation rate assumed over the projection period.
Assumptions and limitations
FutureClear applies a single flat inflation rate for the full projection. Actual inflation varies year by year; the model does not attempt to forecast this and treats inflation as a known constant chosen by the user.
Income tax bands, pension allowances, and the personal allowance are held flat in nominal terms by default — mirroring current UK fiscal drag — unless the user edits the tax parameters. This means real-terms tax bills can rise over long projections even when real income stays flat.
Real-terms figures make the projection easier to interpret but obscure the nominal cash amounts. Users who prefer to see cash-equivalent figures can multiply any real-terms value by (1 + inflation)^n to recover a nominal equivalent for year n.