Pension vs Student Loan Overpayment Calculator
Should you contribute more to pension or overpay your student loan? Get a personalized recommendation based on 30-year projections.
Key Takeaways
- For a Plan 2 graduate earning £40,000 with £45,000 loan balance, contributing £2,000 extra annually to pension builds £379,309 over 30 years — while overpaying delivers £0 benefit when your loan gets written off with ~£200,000 remaining balance.
- Your Plan 2 repayment threshold is £29,385 for 2026-27. Above this you repay 9% of the excess, so at a £40,000 salary you pay £955/year or £80/month in mandatory repayments, which salary sacrifice pension reduces automatically.
- Pension contributions provide 37–51% combined relief (20–40% income tax + 8% or 2% NI + 9% student loan via salary sacrifice) — making 7% compound pension growth far superior to debt reduction on a loan you won't fully repay.
- Overpayment only makes sense if you'll definitely clear your loan before write-off — typically requiring £60,000+ consistent salary and sub-£20,000 balance, which applies to fewer than 17% of Plan 2 borrowers.
- With 5% employer match, your £1,180 net cost builds £4,000 pension value — a 239% instant return that compounds at 7%+ for decades, making employer-matched pension the clear winner over loan overpayment.
Recommendation: Prioritize Pension Contributions
- Pension provides £99,404 more wealth over 30 years
- Tax relief of 41.0% makes pension extremely valuable
30-Year Comparison
This calculator projects pension growth and loan balance over the write-off period to show which strategy builds more wealth.
Threshold: £29,385, Rate: 9.0%
Monthly: £167
Total pension: £4,000
This is what you are deciding how to use
Typical: 2-3% per year
20% pension tax relief
Saves tax + NI + student loan
30-Year Outcome Comparison
Extra to Pension
Extra to Loan Overpayment
Wealth Difference
£99,404
More wealth with pension strategy
Key Decision Factors
Based on 9.0% of income above £29,385
Total 41% effective relief via salary sacrifice
After 30 years, any remaining balance is written off regardless of size
Historical average for diversified stock funds over 30 years
Relative Outcomes
Understanding the Outcome
For most graduates:
Pension contributions provide tax relief immediately (20% + NI + SL) and grow tax-free at ~7% annually. Loan overpayments provide zero benefit if the loan gets written off with a balance remaining.
Loan write-off reality:
Your loan will likely be written off with £109,654 remaining. Overpayments on a loan that gets written off provide £0 return.
Compound growth power:
£2,000 per year for 30 years becomes £188,922more pension value due to compound growth at 7% vs interest savings on potentially written-off debt.
How to Use This Calculator
What It Compares
- • Projects your pension growth over 30 years
- • Calculates loan balance including write-off
- • Factors in tax relief, employer match, compound growth
- • Shows net wealth under each strategy
- • Recommends optimal approach for your situation
Key Assumptions
- • Pension returns: 7% annually (historical average)
- • Loan interest: 5.5% (current rate at your salary)
- • Write-off: 30 years for Plan 2
- • Salary growth: 2% per year (adjustable)
- • Tax relief: 20% + 21% (NI+SL)
When to Prioritize Each Option
Prioritize Pension If:
- • Your loan will be written off with balance remaining
- • You are basic-rate or higher-rate taxpayer (tax relief valuable)
- • You have not maxed employer pension match yet
- • Your salary is £25k-£50k (typical write-off scenario)
- • You want to maximize long-term wealth
Prioritize Overpayment If:
- • You will definitely clear loan before write-off
- • Loan balance is small (under £15k) and clearable in 5 years
- • You value psychological benefit of being debt-free
- • Your salary is £60k+ throughout career (rare full repayment)
- • You have already maxed pension contributions
Pension Contributions Are Your Best Bet
Based on your inputs, prioritizing pension contributions will build £99,403.908 more wealth over 30 years.