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To ensure I don't overflow my pension in future, I require some way of best-guessing what the pension pot limit will be when I retire (it's currently £1.25M, soon to be £1M due to new policy).

Assuming I can withdraw from age 55 in the future, I will need to project forward 27 years from now (I am currently 28 years old).

Let's assume I can contribute the maximum of £40K each year.

Assuming the limit remained at £1M, and assuming an annualised market return of 9%, I would only need to make 3 years of contributions (£120K) to breach the £1M limit by retirement age - which would result in taxation on the difference (and hence poor financial planning in hindsight!).

However, it seems unlikely this limit will be £1M in 2043. One assumption would be a limit closer to £2M, given an estimated 3% annualised inflation.

How should I calculate when to stop contributing to my pension? (For example, is projecting a future pension pot limit based on inflation sensible?)

Lawrence Wagerfield
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Predicting government regulation in the near future is hard enough. Predicting what the government will do 25 years out is so hard I'm not sure there is a good answer to your question.

Your assumptions and answer seems sensible and you appear to be doing the right calculations. You might improve on this by making a couple scenarios. Would it be worth putting some extra money in just on the chance that the limit might rise faster? What about if it rises more slowly? If capturing the upside of tax deferral is more important than the penalty, as I suspect it might be, than maybe being 10%-20% over the limit is a better way to go.

rhaskett
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