Pension Growth Calculation

Hal17

Having tracked my pension growth since 2013 and including in my spreadsheet the following details. New contributions, tax relief received, drawdown taken and tax free sums withdrawn.

I was wondering in order to work out the true percentage growth year on year, should I exclude or include the tax relief value received on new contributions in my calculation. I have been excluding it up to now but was wondering if this was correct? I was just thinking that had I not made these new pension contributions, I would not have received the tax relief. 

Dazed_and_C0nfused

Hal17 said:

Having tracked my pension growth since 2013 and including in my spreadsheet the following details. New contributions, tax relief received, drawdown taken and tax free sums withdrawn.

I was wondering in order to work out the true percentage growth year on year, should I exclude or include the tax relief value received on new contributions in my calculation. I have been excluding it up to now but was wondering if this was correct? I was just thinking that had I not made these new pension contributions, I would not have received the tax relief. 

What have you done with the tax relief, bought units in something or left it as cash?

kinger101

What are you hoping it will tell you?

Whatever you are calculating is only for your benefit.

tacpot12

Ideally you would exclude the tax relief if you want to see the grow delivered by the investments, but it can be very difficult to eliminate the effect of both the tax relief and the additiional contributions. 

I would approach the problem by modelling everything in a spreadsheet, including the tax releif and new contributions, along with a rate of return you can set in a cell on the sheet. Then you just fiddle with this rate of return until the total at the end of your calculation matches the present value of your pension. Providing you have modelled the growth correctly, you will have a fairly accurate rate of return since you started the pension. 

Hal17

Thanks for the replies. The tax relief has been added to my pension contribution and invested each year into my Royal London fund.

I agree it is only for my own benefit and makes absolutely no difference to my pension plans. I just wondered when you read that people state that their funds have grown x% this year, how mine compared.

Purely for my own entertainment. Perhaps I will just do the calculation both ways and record both percentage on my spreadsheet. 

Secret2ndAccount

The tax relief is all part of the same pot. It should be included and not treated separately. You don't get to invest it in a different way, or spend it differently when you retire. 
That said, if you are mainly interested in tracking growth, then as long as you include it or exclude it at both ends of the calculation you are likely to get a similar result.
If you are trying to compare, say, a pension with an ISA, then you include the tax relief, but also deduct tax when you withdraw the money - you have to estimate the taxation based on your circumstances. You can't get to a more realistic estimate by pretending the tax relief doesn't exist.

DRS1

Equally if the tax relief is higher rate tax relief outside the pension pot then you should ignore it.  Just measure what is in the pot.

Hal17

Thanks everyone for the excellent replies. Tacpot12 that is a good idea, I will try what you suggested. Thanks.