Complex Saving Calculator

Cardew

There are scores of savings calculators on the web, yet I cannot find one that fits my requirement.


I want to find how much an inflation linked annual pension will be worth if it is invested untouched at various interest rates over X years. e.g.

Case 1 - What sum will accrue after 10 years if an inflation linked pension of say, £1,000 is deposited in a saving account when inflation is 2% and the interest is 3%

Case 2 - What sum will accrue after 15 years if an inflation linked pension of say, £7,500 is deposited in a saving account when inflation is 3% and the interest is 4%

Is anyone aware of such a calculator please?

LXdaddy

Cardew wrote: »

There are scores of savings calculators on the web, yet I cannot find one that fits my requirement.


I want to find how much an inflation linked annual pension will be worth if it is invested untouched at various interest rates over X years. e.g.

Case 1 - What sum will accrue after 10 years if an inflation linked pension of say, £1,000 is deposited in a saving account when inflation is 2% and the interest is 3%

Case 2 - What sum will accrue after 15 years if an inflation linked pension of say, £7,500 is deposited in a saving account when inflation is 3% and the interest is 4%

Is anyone aware of such a calculator please?

I am not aware of any such calculator but I might be able to help with the calculation if you clarify a few points..

It sounds like you are considering taking all the pension you receive and depositing it into a savings account. The income from the pension is index linked and the savings account is earning interest.

Is that basically what you are thinking?

How frequently is the Pension income received? I guess monthly?
How frequently does the Pension payment change? I guess annually on the anniversary of the start of the process?
How frequently is the savings account interest added? I guess annually on the anniversary of the start of the process?

On those assumptions, the savings account would have the following balances at the end of the period...
Case 1: £12,695.19
Case 2: £186,180.43

Cardew

LXdaddy wrote: »

I am not aware of any such calculator but I might be able to help with the calculation if you clarify a few points..

It sounds like you are considering taking all the pension you receive and depositing it into a savings account. The income from the pension is index linked and the savings account is earning interest.

Is that basically what you are thinking?

How frequently is the Pension income received? I guess monthly?
How frequently does the Pension payment change? I guess annually on the anniversary of the start of the process?
How frequently is the savings account interest added? I guess annually on the anniversary of the start of the process?

On those assumptions, the savings account would have the following balances at the end of the period...
Case 1: £12,695.19
Case 2: £186,180.43

Hi, Thanks for the above.


Yes, that(in bold) is exactly the aim. and the pension would be paid monthly.


It is not for me but a friend(a teacher) who is contemplating buying additional pension in the Teacher's Pension Scheme with a lump sum.


Alternative options are an AVC, SIPP, etc. and she wants to have some idea which will be the most attractive option - given that you have to guess returns, inflation rates interest rates etc.


It is easy to find out the amount of additional pension that can be bought - all you need is her age. That additional pension is inflation linked, so it isn't difficult to calculate what value it will be at aged 60 making assumptions that the inflation rate will be various values(1%, 2%, 3% etc)


It is at age 60 that she wanted to calculate how much, using variables of inflation rate: interest rate and saving period(say 10 years) how big her 'pot' would be if the pension(less tax) was paid into a saving account.

LXdaddy

Here's the calculation I did...

P is (annual) pension
N is number of times per year the pension is payable
INF is the inflation rate
INT is the interest rate
BAL(Y) is the balance in the saving account at the end of year Y

Then
balance at the start of year Y is BAL(Y-1) but BAL(0) = 0
interest on the brought forward balance BAL(Y-1) * INT
pension deposited during year Py = P * INF ^ (Y-1)
interest earned on the additional deposits = Py / N * (N+1)/2 * INT

Add these four elements tegether for the balance at the end of the year

Some pseudocode for this algorithm would be...


BAL(Y) is calculated as
if Y = 0
then
result = 0
else
result = BAL(Y-1) * (1 + INT) +
(P * INF ^ (Y-1)) * (1 + INT/N * (N+1)/2)
end


edit: The calculations above do not consider tax implications.