Money and Pensions Service: Pension Calculator

Tier 1 Information

1 - Name

Pension Calculator

2 - Description

The algorithmic tool described in the document is a pension calculator designed to help individuals estimate their potential retirement income based on several factors such as defined contribution and defined benefit pensions, as well as State Pension entitlements. Here’s an overview of how and why it is used:

How the Pension Calculator is Used:

Data Input: Users provide personal details such as age, gender, desired retirement age, salary, and pension contributions.
Retirement Income Forecast: The tool generates an estimate of future retirement income from different sources (State Pension, private pensions, other income).
Scenario Adjustments: Users can modify variables, like retirement age or pension contributions, and see how these changes affect their forecasted income.
Result Analysis: The tool identifies any shortfall or surplus between the user’s forecasted income and their target retirement income.

Why the Pension Calculator is Being Used:

Planning for Retirement: It allows individuals to understand how much they will likely have when they retire and whether their savings and contributions are sufficient.
Decision-Making: By simulating different scenarios, users can make informed decisions about retirement age, contribution levels, and lump-sum withdrawals to meet their retirement goals.
Shortfall Identification: The tool highlights any gap between forecasted income and desired retirement income, suggesting potential strategies to address this.

3 - Website URL

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/pension-calculator

4 - Contact email

[email protected]

Tier 2 - Owner and Responsibility

1.1 - Organisation or department

Money and Pensions Service

1.2 - Team

Technology and Change

1.3 - Senior responsible owner

Chief Digital and Information Officer (CDIO)

1.4 - External supplier involvement

No

1.4.1 - External supplier

N/A

1.4.2 - Companies House Number

N/A

1.4.3 - External supplier role

N/A

1.4.4 - Procurement procedure type

N/A

1.4.5 - Data access terms

N/A

Tier 2 - Description and Rationale

2.1 - Detailed description

The pension calculator algorithm is designed to help users estimate their retirement income based on several key factors such as salary, pension contributions, and retirement age. Here is a technical breakdown of how the algorithm works:

Input Data:

Personal Information: Date of birth, Gender, Target retirement age & State Pension age (determined automatically)
Income Information: Gross salary (e.g. annually or monthly) & Target retirement income (which depends on the salary level, adjustable by the user)
Pension Contributions: Current value of pension pots (defined contribution schemes), User contributions (e.g. monthly/annual), Employer contributions (e.g. monthly/annual) & Lump sum withdrawal option (up to 25% of pension pot)
Other Sources of Income: Defined benefit income, Other income (e.g., from savings, property, or a deceased partner’s pension) & Estimated State Pension income (calculated based on National Insurance Contributions)

Calculation Process: 1. Pension Pot Accumulation: Contributions to the pension pot are incremented by 2.5% per year (to reflect pay raises). Pension pot growth is assumed to be 5% annually, simulating investment growth. Pension charges reduce the pension pot by 0.75% annually. Inflation reduces the real value of the pot and expected income by 2.5% per year.

State Pension and Other Pensions: State Pension income is calculated based on a full State Pension assumption (£221.20 per week) and adjusted according to inflation. Defined benefit and other sources of income are assumed to increase with inflation as well.
Retirement Income Estimate: The algorithm estimates income based on an assumed annuity purchase from the pension pot, which provides a fixed income for life. If the user chooses to withdraw a lump sum (up to 25% tax-free), the remaining pension pot is reduced, lowering the estimated income from the annuity.
Shortfall or Surplus Calculation: A comparison is made between the estimated total retirement income (from the pension pot, defined benefit schemes, State Pension, and other income) and the user’s target retirement income. If the total estimated income falls short, the algorithm calculates a “shortfall,” highlighting how much more would be needed to meet the target. If the income exceeds the target, it displays a surplus.
Adjustable Variables: Users can adjust parameters such as their retirement age, contribution amounts, and lump-sum withdrawal. The tool recalculates the retirement income based on these changes.

Key Assumptions:

Investment Growth: 5% per year
Inflation Rate: 2.5% per year
Pension Charges: 0.75% per year
Tax Relief: Included in contributions
State Pension: Assumed full amount unless stated otherwise

Output: - Retirement Forecast: The total estimated retirement income from all sources, calculated annually and displayed for various ages. - Shortfall/Surplus: The difference between the target and estimated income. - Scenarios: Users can view how altering the retirement age, contributions, and lump-sum withdrawals will affect their income.

The algorithm provides a dynamic simulation based on user input, enabling various retirement scenarios to be explored.

2.2 - Scope

The Pension Calculator tool is designed to help individuals estimate their retirement income and plan for their financial needs during retirement. The tool’s primary purpose is to answer two key questions:

How much do you need in retirement?
How much are you likely to have?

Key Features and Purpose: Forecast Pension Income: The calculator provides a projection of the likely pension income a person will receive at retirement, including income from defined benefit and defined contribution pensions, as well as the State Pension.

Target Retirement Income: The tool helps users determine their desired retirement income based on their salary. Users can adjust variables like retirement age and contributions to see how it impacts their pension income.

Adjustable Factors: Users can modify their retirement age, contributions, as well as the amount they plan to take as a tax-free lump sum to see how these choices affect their pension income.

Identify Shortfalls: The calculator helps identify potential shortfalls between the user’s forecasted income and their target retirement income. It also provides suggestions on how to improve retirement outcomes if there’s a gap.

Next Steps: The tool provides guidance on what actions to take if the projected income is lower than desired, including increasing contributions or changing retirement age.

Scenarios the Tool is Designed For: Individuals Planning Retirement: People approaching retirement (typically aged 55 or older) who want an estimate of their pension income.

Defined Contribution/Benefit Holders: Users with either defined contribution or defined benefit pension plans.

State Pension Inclusion: The calculator integrates expected income from the State Pension, providing a more comprehensive view of retirement income.

Income Estimation and Adjustment: Users who want to experiment with different retirement ages or contribution rates to see how their retirement income will change.

Tax-Free Lump Sum Consideration: The tool allows users to factor in taking up to 25% of their pension pot as a tax-free lump sum and see how it affects their overall income.

Scenarios the Tool is Not Designed For: Younger Individuals: The tool is aimed at those retiring at age 55 or older, so it may not be suitable for younger users looking for long-term pension projections.

Highly Complex Financial Situations: The tool is simplified for broad use, so individuals with highly complex pension situations, such as large investments, tax implications beyond the basics, or multiple income streams, may need more personalised financial advice.

Non-Pension Investments: The tool focuses on pensions and does not include calculations for non-pension investments like stocks or property unless explicitly entered as other income.

Guaranteed Returns: The projections are based on assumptions like inflation, investment growth, and pension charges, so they are illustrative and not guaranteed outcomes.

This summary helps clarify both the intended use cases of the Pension Calculator tool and the limits of its scope.

2.3 - Benefit

Key Benefits of the Pension Calculator Tool: Comprehensive Retirement Income Forecast: The tool combines income from defined benefit (DB) schemes, defined contribution (DC) schemes, State Pension and other income sources to provide an estimate of expected retirement income. This gives users a holistic view of their potential financial situation in retirement, allowing them to assess whether their current savings strategy will meet their retirement goals.

Personalised Target Income Adjustment: Users can input their current salary and retirement age to receive a personalised target retirement income. The flexibility to adjust variables such as: Retirement age, Monthly or yearly pension contributions, Lump sum withdrawals, allows for a tailored financial projection.

Next Steps Guidance: If the forecasted income falls short of the user’s desired lifestyle, the tool provides actionable advice on how to bridge the gap. It suggests increasing contributions, delaying retirement, or making other adjustments.

Flexibility and Scenario Planning: The tool enables users to simulate different financial scenarios by adjusting key parameters (e.g., retirement age, contribution amounts, lump sums).

Clear Illustration of Shortfalls or Surpluses: The tool visually represents whether a user’s estimated retirement income will meet, exceed, or fall short of their target.

User-Focused Design: The tool is built to be intuitive and accessible, ensuring that users without a deep understanding of pension schemes can still confidently plan for retirement.

Expanded Justification for Using the Tool: Simplification of Complex Pension Calculations: Retirement planning is inherently complex, involving numerous factors, such as State Pension entitlements, defined benefit/contribution pensions, lump sum withdrawals, and investment growth.

More Informed Financial Planning: The tool helps users understand the impact of key decisions—such as increasing contributions, changing retirement age, or withdrawing a lump sum—on their future pension income.

Faster Results and Immediate Feedback: With simple inputs, the Pension Calculator provides instant estimated results and allows users to adjust variables in real-time, offering immediate refinement of their estimations.

Free to use: The tool is free and available to users at any time.

Empowerment Through Autonomy: One of the key benefits of the Pension Calculator is that it gives users more autonomy over their retirement planning. Users can independently adjust their inputs, experiment with different scenarios, and see the results immediately.

In conclusion, the Pension Calculator provides a fast, flexible, and easy to user experience. By simplifying complex calculations, offering instant feedback, and allowing users to take charge of their financial future, it

2.4 - Previous process

Description of the Decision-Making Process Prior to Deployment: The pension calculator is based on consumer needs and creating an impartial tool where users can get estimates about their retirement income. The tool was first developed in the Financial Services Authority and then with an act of Parliament moving the activity of “helping people understand their finances and markets” the tool was given to the Money Advice Service. The tool is reviewed to meet user needs and to align to any market changes. The decision-making process was guided by our internal research, an analysis of existing solutions, and an understanding of the evolving needs of UK citizens who are saving for retirement.

Research That Informed Deployment of the Tool: Market Research and User Feedback: Market research played a crucial role in shaping the development of the Pension Calculator.

Analysis of Competitor Tools: A competitor analysis was conducted, reviewing similar pension calculators from pension providers and other commercial market players.

Internal Expertise and Collaboration: The decision-making process was also informed by the expertise of the policy and proposition team within the organisation. Leveraging their deep understanding of pension products and financial planning, the tool was designed to provide a balance between simplicity and accuracy. Collaboration with regulatory bodies also ensured that the tool met legal requirements and best practices.

Technology and Digital Transformation Strategy: The decision to refine and iterate the tool has been based on organisations strategies to have impartial tool available for our users.

2.5 - Alternatives considered

Alternatives Considered: During the life of the tool and it’s move from legacay organisations to MaPS/MoneyHelper, users needs and organisational strategy was considered. While market options such as pension provider calculators like Standard Life and Avia were examined, it did not meet the users needs to providing an “impartial, non-commercial service”.

To best meet users needs and the organisations remit for providing impartical guidance, the recommendation was to build and maintain the calculator in house. The selected approach integrates multiple pension sources (DB, DC, and State Pension) and other income sources into a single view, which provides users with a comprehensive forecast. While more complex, it is designed to balance usability with depth of analysis, making it more accessible without sacrificing accuracy. This ensures the tool can meet the diverse needs of the user base.

Tier 2 - Decision making Process

3.1 - Process integration

The calculator help users forecast their retirement income. It integrates into the decision-making process by providing users with estimates of their future pension income based on various inputs. These inputs include: Current pension savings: Both defined benefit (DB) and defined contribution (DC) pensions, state pensions, and other retirement income sources. Contribution rates: How much the user and their employer are contributing to their pension. Retirement goals: Target income in retirement, retirement age, and any lump sum withdrawals.

How the Tool Influences Decision-Making: Income Forecasting: The tool estimates the likely income at retirement and highlights any potential shortfalls based on user inputs. While the calculation method is reliable, changes in parameters can occur that exceed the assumptions used, meaning the estimate, though informative and dependable, cannot be considered absolutely precise. It serves to help users gauge their progress toward retirement goals. Impact of Variables: It allows users to manipulate factors like retirement age, contribution rates, and lump sum withdrawals. By adjusting these variables, users can see how their choices affect the outcome, such as increasing their contributions to close a shortfall. Scenario Exploration: Users can explore scenarios, such as retiring earlier or later, or taking a lump sum. This helps in making decisions about adjusting their contributions or altering their planned retirement age to meet their financial goals.

The Wider Decision-Making Process: The algorithmic tool is embedded into a comprehensive website (moneyhelper.org.uk) which provides a large variety of contents and offers free and impartial guidance on various personal finance topics. Here’s an overview of the key information available on the site:

Budgeting and Managing Money: Tools and advice for creating budgets, managing expenses, and staying on top of day-to-day finances. Tips on saving money, managing debt, and setting financial goals.
Savings and Investing: Information on different types of savings accounts, ISAs, and investment options. Guidance on building a savings plan and understanding the risks associated with investments.
Debt Advice: Help for individuals dealing with debt, including advice on how to manage debt repayments, negotiate with creditors, and where to seek further support. Debt solutions like debt management plans, bankruptcy, and debt relief orders.
Pensions and Retirement: Detailed guidance on workplace pensions, personal pensions, and the State Pension. Tools to help plan for retirement, understand pension entitlements, and explore options for taking your pension.
Borrowing and Credit: Information on loans, mortgages, credit cards, and other forms of credit. Tips on how to borrow responsibly, improve credit scores, and avoid high-cost borrowing.
Insurance: Guidance on different types of insurance, such as life, home, car, and health insurance. Tips for choosing the right insurance and understanding policy terms.
Family and Care: Financial advice for families, including managing childcare costs, dealing with divorce, and planning for long-term care. Information on financial support and benefits available for carers and parents.
Work and Benefits: Help with understanding benefits, including Universal Credit, disability benefits, and unemployment support. Guidance on how to manage your finances when facing changes in employment.
Financial Tools and Calculators: A range of interactive tools, including a budget planner, savings calculator, mortgage calculator, and pension calculator, to help users make informed financial decisions.
Consumer Rights and Protection: Information on financial scams, fraud protection, and how to resolve disputes with financial providers.

Assumptions and Limitations: The tool operates on specific assumptions, such as annual pay increases, pension growth rates, inflation, and tax relief on contributions. These assumptions mean that the results are illustrative, not definitive, and users should interpret the forecasts as estimates.

3.2 - Provided information

The pension calculator tool provides several key pieces of information to the decision maker, offering a forecast of retirement income and identifying potential shortfalls. This information includes:

Forecast of Likely Pension Income: The tool forecasts the likely pension income based on inputs from the user, including defined benefit pensions, defined contribution pensions, and the State Pension. Users can alter factors like retirement age and contributions to see how these adjustments impact income.
Target Retirement Income: The tool suggests a target retirement income, depending on the user’s current salary, allowing the user to adjust this target based on personal needs.
Results Table: The output is presented in a table format showing total estimated income at different ages (e.g., 67 and 70). The table includes various sources of income, such as State Pension, defined benefit pensions, and income from pension pots, as well as any shortfalls or surpluses compared to the target income.
Income Adjustment Options: Sliders and input fields allow the user to explore different scenarios by adjusting retirement age, contributions, and lump sum withdrawals. For instance, users can modify the percentage of tax-free lump sum they wish to take or experiment with employer contributions to see how these changes affect their overall pension.
Assumptions Provided: The tool bases its calculations on several assumptions, including inflation rates, pension pot charges, investment growth rates, and tax relief.
Next Steps and Recommendations: If the user’s forecasted income falls short of their target, the tool provides recommendations for how to improve their pension, such as increasing contributions or seeking financial advice if their pensions exceed certain thresholds.

This information is designed to help users make informed decisions about their retirement planning by forecasting both their income and any potential gaps.

3.3 - Frequency and scale of usage

The Pension Calculator tool is a widely utilised resource, engaging numerous users on a daily basis. Over the course of the reporting period from September 1, 2023, to August 31, 2024, the tool recorded significant user activity. A total of 572k users initiated the tool, while 357k successfully completed the process, generating pension results. This represents a tool completion rate of 62%, indicating the proportion of users who fully navigated the tool and obtained calculated outcomes.

3.4 - Human decisions and review

The Pension Calculator is a forecasting tool designed to provide users with estimates of their potential retirement income based on the information they input. It is important to clarify that the tool does not make financial decisions for the user but rather offers projections based on variables such as contributions, retirement age, and lump sum withdrawals.

Key User-Driven Decisions:

Retirement Age Selection: Users choose their preferred retirement age, which directly affects the forecasted pension income.
Pension Contributions: Users input both current and future contribution levels, which shape the estimated outcomes.
Lump Sum Option: Users decide whether to take up to 25% of their pension as a tax-free lump sum, impacting their future pension income.
Additional Income: The tool allows users to input other potential retirement income, such as from defined benefit pensions or property.
Target Income: A suggested target income is shown, which users can adjust to align with their retirement goals.

While the tool is automated in generating these forecasts, all decisions remain with the user, and the tool encourages human oversight through interactive adjustments and personalised inputs. For more complex situations, such as pension pots exceeding £1 million, it recommends seeking professional financial advice.

In summary, the Pension Calculator provides guidance but ultimately leaves all financial decision-making to the user, with the option for professional review in specific cases.

3.5 - Required training

Required Training Developers: Developers need a solid foundation in both front-end and back-end development to build and maintain the Pension Calculator tool. Key requirements include:

Front-end and back-end skills: Proficiency in languages such as Ruby, JavaScript, and React is crucial. The preferred infrastructure is Adobe Experience Manager.
API management and security: Expertise in managing APIs, including authentication and secure access management, is essential for seamless integration and data protection.
Version control, testing, and DevOps: Developers should be well-versed in version control (e.g., Git), automated testing, and DevOps practices to ensure continuous integration and deployment (CI/CD) pipelines are efficient and reliable.
Agile practices: Familiarity with Agile methodologies is important. Developers will need to work in sprints, participate in regular scrums, and respond to changing requirements quickly, ensuring iterative improvements and collaboration with cross-functional teams.

Users: The tool is currently live, providing users with clear guidance on how to navigate it, ensuring they understand both its capabilities and limitations. Key features include: - Step-by-step digital journey: The tool is divided into sections, with each section on a separate page. Users can easily track their progress through the journey and see what information is required to proceed to the next step. - On-page explanations: Each page provides relevant information, explaining terms and variables that may impact the final pension outcome. This helps users make informed decisions and understand the implications of their inputs.

3.6 - Appeals and review

Mechanism for review or appeal (available to the public): The results are illustrative and not a final financial determination. If users believe the results are inaccurate, they are encouraged to seek regulated financial advice, especially when dealing with complex pension situations like large pension amounts or varied income sources. For users who feel the tool is inaccurate or not functioning as expected, there are several ways to provide feedback or seek additional help: These feedback channels ensure that any issues with the tool can be promptly addressed while offering users the opportunity to consult a financial advisor if needed. Report Issues: If users encounter bugs, errors, or inaccuracies, they can report these issues using one of the following methods:

Call the free helpline at 0800 011 3797 or use the webchat feature.
Complete the feedback form available at MoneyHelper’s feedback page (e.g. https://www.moneyhelper.org.uk/en/contact-us/feedback)..)
Participate in the navigation survey, which is presented after 120 seconds of using the site.
Contact staff directly through the contact page for a more detailed issue description (e.g. https://www.moneyhelper.org.uk/en/contact-us)..)

If users feel the tool’s estimates are not suitable for their situation, they are encouraged to seek professional, regulated financial advice, particularly for more complex cases involving high-value pensions or multiple income sources.

Tier 2 - Tool Specification

4.1.1 - System architecture

High-Level System Architecture for the Pension Calculator Tool: The Pension Calculator tool is a web component built using a programming language, integrated into the MoneyHelper website. This tool guides users through a structured digital journey organized into five steps:

About You: Users enter personal information such as date of birth, gender, and intended retirement age. Your Income: Users provide details about their gross income. Pension Contributions: Users input data regarding their current pension pots and contributions (from both users and employers). Lump Sum & Other Income: Users indicate plans for taking a lump sum and any additional income sources they may have. Your Results: The tool outputs the projected retirement income in a user-friendly table format.

Data Inputs, Flows, and Outputs: Input Flow: The data collected throughout this journey forms the input flow. This includes personal information, income details, and pension contribution data.

Processing and Calculation: The input data is processed based on a set of model assumptions, such as: Annual salary increases (2.5%) Pension growth rates (5%) Inflation rates (2.5%) Tax relief on contributions

The core calculation engine utilises these inputs and assumptions to generate outputs in real time. The tool computes:

Total Estimated Income: From various sources, including defined contribution pensions, defined benefit pensions, and the State Pension.
Shortfall/Surplus: The difference between the user’s target retirement income and their estimated income.

Output Flow: Once processed, the output is displayed on the front-end interface, allowing users to view their total estimated income and any potential shortfalls or surpluses. Users can modify their inputs to re-generate results, facilitating an understanding of how different decisions impact their projected retirement outcomes.

Technology and Computation: The tool currently operates as a web application hosted on the MoneyHelper website. The computations take place on the server side, leveraging the backend capabilities to perform calculations and deliver results dynamically to the user’s browser. The architecture ensures that all data is processed securely and efficiently.

Key Components of the System: User Input and Personalisation: Users provide essential personal data that customizes their retirement income projections, including current pension pots, defined benefit schemes, and State Pension projections.

Core Calculation Engine: Defined Contribution Pensions: Projects future income by accounting for user and employer contributions, potential growth, and any applicable charges. Defined Benefit Pensions: Considers inflation-adjusted payouts. State Pension: Assumes users will receive the full new State Pension, adjusted annually for inflation. Other income sources, such as savings or property, can also be integrated into the forecast.

Interactive Features: Users can modify key variables, such as retirement age or contribution levels, to explore how these changes affect their projected outcomes.

Results and Recommendations: The tool presents total estimated income and any shortfalls against the user’s target retirement income. It offers actionable recommendations for improving retirement outcomes, such as increasing contributions or postponing retirement.

Assumptions for Illustrative Purposes Only: The tool is based on preset assumptions to create illustrative projections, clearly indicating that actual outcomes may vary due to market performance and individual circumstances. This architecture ensures that the Pension Calculator tool provides a flexible, user-friendly experience, generating reliable retirement income estimates based on well-defined assumptions and user input.

Reference Documentation: For more detailed information on how the tool works and the information required, please refer to: MoneyHelper Pension Calculator (https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/pension-calculator)) and the Pension & Retirement section of the MoneyHelper website (https://www.moneyhelper.org.uk/en/pensions-and-retirement)..)

4.1.2 - Phase

Production

4.1.3 - Maintenance

Yearly review to capture changes in the interest rates, retirement age, state pension contributions or on the other parameters. Code updates uploaded on the GitHub repository.

4.1.4 - Models

The Pension Calculator tool from MoneyHelper operates based on a unified calculation framework that incorporates different financial formulas and assumptions. These components work together to provide users with pension income forecasts. Below is a breakdown of the key assumptions and formulas integrated into the tool:

Investment Growth Assumption: The calculator assumes that pension investments grow by 5% annually. This is a straightforward financial formula applied to project the future value of pension contributions, accounting for compound growth over time.

Inflation Adjustment Formula: A 2.5% annual inflation rate is used to discount future pension values and incomes to present-day terms. This adjustment ensures that users can see the real value of their pension in today’s money, accounting for the erosion of purchasing power over time.

Salary Growth Assumption: Contributions to pension pots are assumed to grow by 2.5% each year to reflect typical salary increases. This formula is applied to simulate the long-term impact of increasing salary contributions on the pension pot.

Pension Charges Assumption: The tool assumes an annual pension management charge of 0.75%, which is deducted from the pension pot. This calculation models the impact of management fees on the overall growth of the pension over time.

Annuity Income Formula: The tool assumes that the pension pot is converted into a guaranteed life annuity at retirement. The income from this annuity is fixed, simulating a steady stream of monthly or yearly payments throughout retirement. This approach assumes the user purchases an annuity that does not increase over time.

State Pension Income Formula: The calculator assumes that users will receive the full new State Pension based on their National Insurance contribution records, with annual adjustments to reflect inflation. This helps provide a complete picture of the total retirement income.

Defined Benefit Pension Formula: Defined benefit pensions are assumed to increase annually to keep pace with inflation. This ensures that retirement income from defined benefit schemes remains protected against the rising cost of living.

Retirement Age Adjustment: The tool allows users to change their expected retirement age. This feature recalculates pension income based on changes in the retirement age, factoring in variables like investment growth, inflation, and the time available for pension accumulation.

Contribution Impact: The user’s contributions, including those from their employer, are factored into the projection of the pension pot’s growth. This formula calculates the compounded effect of regular contributions on the final pension amount at retirement.

Tier 2 - Model Specification

4.2.1 - Model name

Pension Calculator (Rule-based model)

4.2.2 - Model version

Current version is 3.8.0 The version has no public meaning and it depends on the latest version of the code in the GitHub repository. Reference: https://github.com/moneyadviceservice/pensions_calculator/blob/master/lib/pensions_calculator/version.rb

4.2.3 - Model task

The model estimates an individual’s retirement income based on their current pension contributions, defined benefit pension schemes, the state pension, and other sources of income. It helps users forecast their potential pension income and identify any shortfalls between expected and desired retirement income.

4.2.4 - Model input

Personal details: Date of birth, gender, and retirement age. Income details: Current gross salary, contribution details (user and employer contributions). Pension pots: Current value of any defined contribution pension pots. Other income: Expected defined benefit pensions, state pension, and any other income sources. Tax-free lump sum: Option to take up to 25% of the pension pot as a tax-free lump sum.

4.2.5 - Model output

The model outputs the user’s forecasted pension income, including estimated income from defined contribution and defined benefit schemes, the state pension, and other income sources; it also provides insights into potential retirement shortfalls or surpluses by comparing target income with estimated income, and allows users to adjust retirement age, contributions, and lump sums to assess the impact on their forecasted income.

4.2.6 - Model architecture

The model is rule-based rather than machine-learning-based. It uses assumptions and calculations based on user input to project pension outcomes: Assumptions: Pension pot contributions increase by 2.5% yearly due to expected salary increases. Pension charges are set at 0.75% per year. Investment growth of pension pots is assumed to be 5% annually. Inflation is accounted for at 2.5% annually. Full State Pension and Defined Benefit pensions are adjusted annually for inflation. The architecture of the calculator involves deterministic projections using these predefined assumptions and user inputs.

4.2.7 - Model performance

The model’s performance is closely tied to its ability to generate accurate projections based on user-provided information, as well as assumptions about investment growth, inflation, and contributions. As a financial planning tool, it aims to provide illustrative results that help users make informed decisions about their retirement, though actual outcomes may differ due to changing circumstances. The accuracy of the tool’s output is directly influenced by the precision of the data entered by users, and the results are generated instantaneously once inputs are submitted.

To ensure high-quality, accurate outputs and to validate that the underlying rules and assumptions function as intended, several performance testing practices are applied during both the development and annual maintenance phases.

Best practices include:

User Guidance and Input Validation: To assist users in providing accurate and relevant data, the tool features informative prompts and guidance throughout the interface. These messages clarify the significance of specific inputs (e.g., retirement age, contribution levels) and help reduce the risk of errors that could lead to inaccurate projections.
Adjustment Flexibility: The tool enables users to modify key assumptions - such as retirement age, contributions, and lump sums - to see how changes affect their projected income. This allows for dynamic testing of various scenarios and ensures that the tool performs well under different sets of inputs.
Collaboration with the Government Actuary’s Department (GAD): Another part of the performance testing involves the use of test scenarios originally provided by the GAD. These scenarios include pre-defined inputs and corresponding expected outputs, which serve as a benchmark to ensure that the tool is working as intended. These test cases are reviewed and updated as necessary, particularly when there are policy changes (e.g., adjustments to the state pension age).
Systematic Testing and Deployment:
- When significant updates are needed - such as those triggered by changes in pension rules or assumptions - the tool is first refined and tested in a development environment.
- The updated tool is evaluated against the GAD test cases to ensure alignment with expected results.
- Following successful internal testing, the tool undergoes beta testing in a production-like environment to ensure stability and accuracy under real-world conditions.
- Once the beta version consistently meets performance expectations, the final version is deployed to the public.

By adhering to these practices, the Pension Calculator maintains a satisfactory standard of accuracy and reliability, ensuring that users receive relevant, dependable forecasts based on the latest data and assumptions. This thorough approach to performance testing helps guarantee that the tool continues to meet user expectations and regulatory requirements.

4.2.8 - Datasets

The datasets utilised for developing and validating the model include the Government Actuary’s Department (GAD) test dataset, along with relevant information from Cabinet Office and Central Digital and Data Office (CDDO) intranet web pages. These datasets are instrumental for evaluating the accuracy of the formulas employed in the model to ensure precise results.

In particular, the GAD test cases provide a structured collection of input data and corresponding expected outputs. For instance, given specific input parameters such as ‘date of birth’, ‘sex’, ‘initial pot’, ‘lump sum percentage’, ‘salary’, ‘employer contribution’, ‘employee contribution’, and ‘retirement date’, the model is evaluated by comparing its output for ‘state pension income’, ‘pot value’, and ‘pension income’, all of which are rounded to zero decimal places.

4.2.9 - Dataset purposes

Government Actuary’s Department (GAD) test cases where used for development and testing processes. Considering the nature of the model (i.e. rule-based) there is no training or validation.

Tier 2 - Data Specification

4.3.1 - Source data name

Government Actuary’s Department (GAD) test cases

4.3.2 - Data modality

Tabular

4.3.3 - Data description

‘date of birth’, ‘sex’, ‘initial pot’, ‘lump sum percentage’, ‘salary’, ‘employer contribution’, ‘employee contribution’, ‘retirement date’

4.3.4 - Data quantities

25 full complete scenarios (data containing all the inputs and expected outputs) to analyse

4.3.5 - Sensitive attributes

Specifically, the GAD test cases provide a collection of inputs and their corresponding expected outputs. Sensitive attributes in these test cases include personal data such as ‘date of birth’ and ‘sex’, which are proxy variables for age and gender.

4.3.6 - Data completeness and representativeness

Data is complete (no missing data) and it moderately represents the target population.

4.3.7 - Source data URL

No available public URL

4.3.8 - Data collection

This dataset comprises a sample of individuals with varying ages, genders, salaries, and pension requirements. While specific details regarding the collection methodology are not provided, the data was obtained directly from the GAD office.

4.3.9 - Data cleaning

N/A

4.3.11 - Data access and storage

No data - personal, sensitive or otherwise - is stored. Data is temporarily stored in the browser’s query string during the user’s navigation through the tool, allowing them to move back and forth until they reach the final summary step (customers in this way can evaluate the impact of changes in the input parameters and how these affect the outcome). Once the browser window is closed, the session data is not persisted, and customers cannot return to their previous session.

Tier 2 - Risks, Mitigations and Impact Assessments

5.1 - Impact assessment

As part of our ongoing review of all tools, we have developed a new DPIA model for the Pension Calculator. This is based on the data we’ve collected and our latest analytics infrastructure. As a general practice, publicly-exposed tools that might use Personally Identifiable Information (PII) data, require a DPIA assessment. A new DPIA model has been completed ahead of the publication.

5.2 - Risks and mitigations

We highlight here some potential risks related to the algorithmic approach used and outline mitigation strategies where applicable:

Assumptions About Pension Growth
- Risk: The algorithm assumes a consistent 5% annual growth in pension investments. However, real-world returns may be higher or lower, depending on market performance, which introduces a risk of over- or underestimating future pension income.
- Mitigation: The tool explicitly states that the values are for “illustrative purposes only,” signalling to users that the projections are estimates rather than guarantees.
Inflation Adjustments
- Risk: The algorithm considers a steady 2.5% annual inflation rate to reflect changes in the buying power of pension income over time. If actual inflation deviates from this assumption, the calculated retirement income may be misleading, particularly in long-term planning.
- Mitigation: By stating the inflation assumption upfront, the tool ensures transparency. Users are informed that all values reflect today’s money to allow a more realistic comparison.
State Pension Assumptions
- Risk: The tool operates on the premise that users will receive the full amount of the new State Pension, but actual entitlements vary based on each individual’s National Insurance Contributions. This assumption could lead to overestimation of pension income for users who may not qualify for the full amount.
- Mitigation: The calculator advises users that the amount of State Pension they receive depends on their specific contribution history and provides links for obtaining personalised State Pension statements.
Defined Benefit (DB) Pension Growth
- Risk: The tool assumes income from defined benefit pensions will increase yearly to match inflation. If a user’s defined benefit pension does not have such inflation protection, this could result in overestimation.
- Mitigation: The assumption is made clear to users, allowing those with defined benefit pensions to be aware of possible discrepancies and adjust their expectations accordingly.
Tax and Contribution Limits
- Risk: The tool expected that users receive tax relief on their pension contributions. However, if users are unaware of tax regulations or exceed contribution limits without realising the impact, this could lead to financial consequences, such as loss of tax relief.
- Mitigation: The tool includes a reminder about the tax relief limits and advises users to seek financial advice if their pension contributions exceed certain thresholds.
Life Expectancy and Annuity Purchase
- Risk: The tool calculates annuity-based retirement income using a constant purchase model, meaning the same amount of income throughout retirement. However, if users live longer than expected or face higher living costs due to inflation, they may outlive their pension income.
- Mitigation: While the tool does not directly address the risk of outliving pension income, it allows users to model different retirement ages and contributions, giving flexibility in planning. It also highlights the impact of inflation on buying power.
Simplified Inputs
- Risk: The calculator simplifies many inputs, such as categorising pensions broadly into defined benefit or defined contribution schemes. This simplicity could lead to gaps in individual-specific factors (e.g., different pension rules or schemes), which could distort results.
- Mitigation: The tool provides clear, step-by-step input options and advises users that more detailed advice may be necessary, especially for complex pension scenarios.

These risks highlight the limitations of algorithmic pension planning tools and reinforce the need for users to supplement online estimates with personalised advice from financial experts, especially in complex or high-value pension cases.

Published 17 December 2024

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