Trying to calculate "interest" on pension

Markeee

I have been paying around £125 a month into my personal stakeholder pension, for around 18 years. The government tops this up by 25% a month (£31.25 a month). My current pension is worth around £63,000.

I've tried to calculate the percentage "interest" or increase in value, using this compound interest calculator at the calculator site.com

Base amount: 0
Annual interest: 8.4%
Period: 18 years
Regular deposit: £125
Compound interval: monthly

Balance at end of 18 years = £63,000

i.e. my pension has had the equivelant of 8.4% interest.

So where the hell has the government top up of 25% gone?

Has my pension provider lost me 16.6%?

I was expecting the figure to be well over 25% – not considerably less.

Aegis

Remember that the 8.4% is per annum, while the 25% tax relief boost is a one-off payment per contribution.

timodell

Do the internal return calculation on your £156.25 monthly contribution (net of tax relief) and you will see that you have averaged 6.4% pa, which is pretty good considering the FT Allshare has only returned about 5.3% pa since the start of 2001 (including dividends)

Paul_Herring

Markeee wrote: »

I have been paying around £125 a month into my personal stakeholder pension, for around 18 years. The government tops this up by 25% a month (£31.25 a month). My current pension is worth around £63,000.

I've tried to calculate the percentage "interest" or increase in value, using this compound interest calculator at the calculator site.com

Base amount: 0
Annual interest: 8.4%
Period: 18 years
Regular deposit: £125
Compound interval: monthly

Balance at end of 18 years = £63,000

i.e. my pension has had the equivelant of 8.4% interest.

So where the hell has the government top up of 25% gone?

Has my pension provider lost me 16.6%?

I was expecting the figure to be well over 25% – not considerably less.

Using the numbers you describe, that regular deposit should be £156.25 a month to include that 25% topup, with a commensurate downward change in the interest rate.

BoGoF

So in the 18 years you have not increased your contributions? You should have been increasing them in line with inflation.....at the very least.

Markeee

timodell wrote: »

Do the internal return calculation on your £156.25 monthly contribution (net of tax relief) and you will see that you have averaged 6.4% pa, which is pretty good considering the FT Allshare has only returned about 5.3% pa since the start of 2001 (including dividends)

Yes, but if I just consider my money - the £125 - should I not expect a return of:

My monthly deposits + 25% (from govt.) + 5.3% (FT Allshare return since 2001) = my monthly deposits + 30.3%

Not 8.4%

Markeee

Paul_Herring wrote: »

Using the numbers you describe, that regular deposit should be £156.25 a month to include that 25% topup, with a commensurate downward change in the interest rate.

Should I not expect this:


My monthly deposits + 25% (from govt.) + 5.3% (FT Allshare return since 2001) = my monthly deposits + 30.3%



Not 8.4%

Markeee

Aegis wrote: »

Remember that the 8.4% is per annum, while the 25% tax relief boost is a one-off payment per contribution.

Wouldn't one expect the following?



My monthly deposits + 25% (from govt.) + 5.3% (FT Allshare return since 2001) = my monthly deposits + 30.3%



Not 8.4%


Thank you

Paul_Herring

My monthly deposits + 25% + 5.3% (FT Allshare return since 2001)?

((monthly deposit *12)*1.25)*5.3% which is what you get does not equal
((monthly deposit*12) + (12+11+10..+2+1)*(monthly deposit)*.25))*5.3% which is what you appear to be expecting.

sandsy

No. What you get is:

Your monthly deposits+ 6.4% pa
+ government monthly deposits + 6.4% pa = 50400+12600 =63000

Ie as 20% of the contributions came from the government, your pot is 20% higher than it would have been otherwise, which is about £12600

(Assuming Timodell was correct)

AnotherJoe

Markeee wrote: »

I have been paying around £125 a month into my personal stakeholder pension, for around 18 years. The government tops this up by 25% a month (£31.25 a month). My current pension is worth around £63,000.

I've tried to calculate the percentage "interest" or increase in value, using this compound interest calculator at the calculator site.com

Base amount: 0
Annual interest: 8.4%
Period: 18 years
Regular deposit: £125
Compound interval: monthly

Balance at end of 18 years = £63,000

i.e. my pension has had the equivelant of 8.4% interest.

So where the hell has the government top up of 25% gone?

Has my pension provider lost me 16.6%?

I was expecting the figure to be well over 25% – not considerably less.

Its gone nowhere since you omitted it from your calculations,which as everyone else have said should have been £156.25 / month.