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How the Engine Works
Isaac's projection engine runs a year-by-year simulation from your current age to age 100. Each year, it moves through one of three phases:
The engine accounts for fractional years — if your birthday is in July, only the remaining months of your first year are compounded, giving month-accurate projections from day one.
Pension Growth (Accumulation)
During accumulation, your Defined Contribution (DC) pension pot grows through monthly compounding. Each month, your contributions are added and investment returns are applied.
For each month:
pot = (pot + monthlyContribution) × (1 + monthlyReturn)
This is repeated 12 times per year (or fewer in the first and last years, for accuracy). Your contribution can be a fixed amount or linked to inflation, and an optional contribution growth rate can increase your payments each year during accumulation.
ISA & Savings
ISAs, other investments, and cash savings are tracked separately from your DC pension pot. Each follows the same monthly compounding formula but with its own rate of return, keeping tax-free ISA growth distinct from pension growth.
State Pension
The new State Pension is calculated based on your National Insurance qualifying years. You need a minimum of 10 qualifying years to receive anything, and 35 years for the full amount.
The current full new State Pension is £241.30 per week (2026/27 rate). It's payable from your State Pension age and is treated as taxable income in the projection.
If you choose to defer your State Pension, Isaac delays when payments begin but does not currently model deferral uplifts.
Defined Benefit Pensions
Defined Benefit (DB) pensions pay a guaranteed annual income from your scheme's normal retirement age. Isaac models the revaluation (growth) of your DB pension up to retirement, subject to an inflation cap set by your scheme.
currentValue = basePension × (1 + cappedGrowth)years
Once in payment, the DB pension is added to your gross income each year and taxed accordingly. You can add multiple DB pensions, each with its own start age and inflation rules.
Income Tax
Isaac calculates income tax using the current HMRC rates for either England/Wales or Scotland. All taxable income sources (DC withdrawals, DB pensions, State Pension, extra income) are combined, and tax is calculated on the total.
Personal Allowance Taper
If your total income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 above the threshold, until it reaches zero.
England & Wales Bands (2026/27)
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 - £50,270 | 20% |
| Higher rate | £50,271 - £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Scottish Bands (2026/27)
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter rate | £12,571 - £16,537 | 19% |
| Basic rate | £16,538 - £29,526 | 20% |
| Intermediate rate | £29,527 - £43,662 | 21% |
| Higher rate | £43,663 - £75,000 | 42% |
| Advanced rate | £75,001 - £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
Tax Band Growth
By default, tax bands are frozen (as per current HMRC policy until 2028). You can optionally model tax band growth, which increases thresholds by inflation each year — useful for longer projections where bands may eventually be uprated.
Tax-Free Lump Sum
When you retire, you can take some of your DC pension pot as a tax-free lump sum. Isaac supports three methods:
As you draw (UFPLS)
With Uncrystallised Funds Pension Lump Sum, 25% of each withdrawal is tax-free and 75% is taxed as income. The tax-free portion is tracked against the £268,275 lifetime limit. Each person (including your partner) has their own independent cap. New plans start with this method.
Some upfront
Take a share of your pot, or a fixed £ amount, as a tax-free lump sum at retirement. Only the part of the pot that pays for it moves into drawdown; a quarter of each later withdrawal from the rest is tax-free, up to what is left of your Lump Sum Allowance. A plan saved with less than 25% upfront is modelled this way, so no tax-free cash is left untaken.
All upfront (Pension Commencement Lump Sum)
25% of your pot is taken as a tax-free lump sum at retirement, subject to the £268,275 Lump Sum Allowance. The rest of the pot moves into drawdown, and what you take from it later is taxed as income.
Taking taxable money flexibly from a pension (a UFPLS withdrawal, or income from drawdown) triggers the Money Purchase Annual Allowance (MPAA), which limits future pension contributions to £10,000 a year. Taking only the tax-free lump sum does not. Isaac applies the lower limit from the year it is triggered.
Drawdown & Withdrawals
In retirement, Isaac calculates how much to withdraw from your pension pot each year to meet your spending target, after accounting for guaranteed income (State Pension, DB pensions, extra income).
Tax-Efficient Withdrawal Ordering
The engine uses an optimised withdrawal sequence:
- First, guaranteed income fills the Personal Allowance (tax-free)
- Then, DC withdrawals are taken to fill the remaining basic rate band
- ISA and savings (tax-free) are drawn to avoid higher-rate tax
- Finally, additional DC withdrawals cover any remaining shortfall
Gross-Up Calculation
When you need a specific net income, Isaac uses binary search to find the gross withdrawal that produces the right amount after tax. This ensures you withdraw only what's needed, minimising unnecessary tax.
Drawdown Strategies
- Flexible drawdown — withdraw what you need each year from your DC pot
- Annuity purchase — buy a guaranteed income at a specified age, funded from one or more DC pots
- Blended — combine flexible drawdown with a partial annuity purchase
An optional emergency fund can be set aside, excluded from drawdown calculations.
Inflation & Growth
Inflation affects spending targets, pension values, and tax bands throughout the projection.
- Default inflation rate: 2.5% per year (adjustable)
- Spending: your target spending increases with inflation each year
- State Pension: with the triple lock on (the default), grows each year by the highest of your triple lock rate (default 3.2%), your inflation rate and 2.5%, with at least the provisional 3.9% for 2027/28; with it off, grows with inflation
- DB pensions: revalued by inflation, subject to scheme caps
- Tax bands: frozen until April 2031 as legislated, then grow with inflation by default (you can choose to keep them frozen or grow them at half of inflation)
Investment Scenarios
You can model three investment scenarios — optimistic, base, and pessimistic — to see how different market conditions affect your retirement. Each uses a different annual return rate applied to the same compounding formula.
Post-Retirement Returns
The default post-retirement investment return is 3.5%, reflecting a more conservative portfolio. This is applied to your remaining pot during drawdown, separately from the accumulation-phase return.
Current Rates & Thresholds (2026/27)
| Parameter | Value |
|---|---|
| Personal Allowance | £12,570 |
| Basic rate upper limit (England/Wales) | £50,270 |
| Higher rate upper limit | £125,140 |
| PA taper threshold | £100,000 |
| Lump Sum Allowance | £268,275 |
| State Pension (full, new) | £241.30/week |
| State Pension age | 66, rising to 67 between 2026 and 2028 |
| Min. NI qualifying years | 10 |
| Full NI qualifying years | 35 |
| Money Purchase Annual Allowance | £10,000 |
| Default inflation | 2.5% |
| Default post-retirement return | 3.5% |
These rates are updated each tax year. Isaac uses the latest HMRC-published thresholds. Personal Allowance and basic rate bands are legislated to stay frozen until April 2031.
Key Assumptions
Every financial projection involves assumptions. Here are the key ones Isaac uses — all are adjustable in the app:
- Investment returns are applied as a constant annual rate, compounded monthly. Real-world returns vary year to year.
- Inflation is modelled as a constant rate. In practice, inflation fluctuates.
- Tax rates and bands use current legislation. Future governments may change these.
- State Pension is assumed to increase under the triple lock by default (the highest of your chosen rate, inflation and 2.5%). The triple lock could be modified.
- Life expectancy is not modelled — projections run to age 120, so you can see how long your money lasts.
- Investment fees are deducted only where you enter an annual fee on a DC pension; otherwise returns are treated as net of charges.
- Non-ISA investments are taxed by type: bond and NS&I interest as savings income; General Investment Account holdings as a 2% dividend yield (after the £500 dividend allowance) plus capital growth taxed as a gain only when sold (18%/24% after the £3,000 exemption, with holdings assumed to be worth what they cost when you start); Premium Bond prizes tax-free.
- Annuity rates are user-specified, not market-linked. Actual rates at purchase will differ.
Important Disclaimer
Isaac is a planning tool, not financial advice. The projections are illustrative only and based on the assumptions you provide. Actual outcomes will differ due to market performance, inflation, tax changes, and personal circumstances.
Isaac is not regulated by the Financial Conduct Authority (FCA). For personalised financial advice, please consult a qualified Independent Financial Adviser (IFA).
Isaac is built and maintained by Budgetwise Limited (Company No. 15344334), trading as Isaac.