Key Stage: KS5
Year group: Year 12 / Year 13
Age range: 16–18
Duration: 50 minutes
Subject: PSHE / Economics / Citizenship
Cost: Free

Learning aim

Students can compare ISA and SIPP for an 18-year-old investor, explain compound growth over a 47-year horizon, and articulate the case for diversified global equity over picking individual stocks.

CURRICULUM National Curriculum links

PSHE Association KS5 H30: investment vs saving, long-term financial planning
Economics A-Level: capital markets, the role of equities, risk vs return
Maths A-Level: compound interest, exponential growth, percentage applications

RESOURCES What you'll need

Compound calculator (or spreadsheet)
Vanguard / iShares / HSBC fund factsheet samples
47-year projection worksheet
ISA vs SIPP comparison summary (annual allowance £20k vs £60k)
UK Tax Drag's first-ISA guide for teacher prep

LESSON Lesson structure (50 minutes)

Opening
HOOK

Show two columns on the board. Column A: "Save £100/month starting at age 18, earn 0% real return, retire at 65." Column B: "Invest £100/month starting at age 18, earn 5% real return, retire at 65." Ask: how different are these? Take guesses. Reveal: A = £56,400. B = £226,000. The cost of NOT investing: ~£170,000.

Direct teach
TEACH

Define a stocks-and-shares ISA: £20,000/year subscription limit, all growth tax-free for life, withdrawable anytime. Define a SIPP: £60,000/year annual allowance, tax relief on contributions (basic rate +25%), but locked until age 55-58. For an 18-year-old, ISA usually wins on flexibility for early career — they may need the money for a house deposit. SIPP wins on long-term tax efficiency. Most 18-year-olds should focus on ISA first.

Pupils apply
GUIDED

Calculate: £100/month into a stocks-and-shares ISA at 6% real return for 47 years. Use the compound formula or table. Result: approximately £294,000. Now £200/month: ~£588,000. Now £50/month: ~£147,000. Discuss: what's the relationship between contribution and result? (Roughly linear with contribution, exponential with TIME.)

Stretch / depth
CHALLENGE

Discuss: how do you invest? Three options: (1) pick individual stocks (e.g., buy Apple shares). (2) actively managed fund (a fund manager picks for you). (3) index fund / global ETF (own a small slice of every major company worldwide). Evidence: most active funds underperform index funds over the long term, net of fees. For an 18-year-old: VWRP (Vanguard FTSE All-World) at 0.22% TER captures the entire global market for almost no fee.

Close
PLENARY

Pupils write three things they've learned and one decision they might make at 18. Share three. Land on: start early, use ISA wrapper, pick low-cost diversified funds, ignore the noise about "hot stocks."

DIFFERENTIATION Adapting for all learners

Support (working below ARE)

Calculate only the linear "no growth" case first to build intuition. Then introduce growth as "you also earn money on the money you earn." Avoid compound formula until basics are stable.

Stretch (working above ARE)

Pupils research the difference between accumulating (Acc) and distributing (Dist) fund variants. Calculate the impact of 0.10% vs 0.50% TER on a 47-year portfolio.

SEND SEND adaptations

For pupils with dyscalculia: use a visual "compound stack" — show the growth as physical stacks each year. For autism: provide a clear flowchart "do I need the money in 5 years? → use ISA. Need it in 30 years? → SIPP."

EAL EAL support

Vocabulary: "compound", "ISA wrapper", "SIPP", "Total Expense Ratio (TER)", "diversification", "global ETF". Sentence frames: "The earlier I start, the more I have at 65 because ___."

ASSESSMENT Assessment criteria

Pupils can: (1) calculate the 47-year value of regular contributions at a given growth rate; (2) compare ISA and SIPP correctly for an 18-year-old; (3) explain why a low-cost diversified ETF is usually preferred to picking individual stocks; (4) articulate the trade-off between flexibility (ISA) and tax efficiency (SIPP).

HOME Homework pack

Three tasks consolidating compound investing concepts. ~40 minutes.

Compound table

What pupils do: Build a spreadsheet showing the final pot value at age 65 for these monthly contributions starting at 18: £50, £100, £200, £400. Use 6% real return.

Expected output: Spreadsheet or table with 4 results.

Marking guidance: 8 marks — 2 per accurate result.

Wrapper choice

What pupils do: In 200 words, explain why an 18-year-old's first investing pound should usually go into an ISA rather than a SIPP.

Expected output: 200-word explanation.

Marking guidance: 6 marks — 2 for ISA mechanics, 2 for SIPP mechanics, 2 for justified preference.

Active vs index

What pupils do: Research and summarise the SPIVA report (Standard & Poor's Indices Versus Active). What does it tell us about active fund vs index fund performance over 20-year periods?

Expected output: Short structured response.

Marking guidance: 6 marks — 3 for accurate research, 3 for analytical conclusion.

SAFEGUARDING Classroom safeguarding

Note for teachers: Do not ask pupils about their own family's tax band, salary, or income. Frame all examples through fictional salaries. Be aware some pupils may be unsure of family financial circumstances — focus on the public-spending side of the lesson, not personal income.

ANSWERS Answer key & differentiation

Answer guide

Hook: saving £100/month at 0% real = £56,400 by 65; invested at 5% real ≈ £226,000 — a ≈£170,000 gap, as the plan states.
Guided (6% real, 47 years): £50/month ≈ £147,000; £100 ≈ £294,000; £200 ≈ £588,000 — doubling the contribution doubles the pot (linear), while extra years compound (exponential). Homework table adds £400 ≈ £1.18m.
Wrapper choice — a strong answer covers: ISA £20,000 a year, tax-free growth, withdrawable any time (house-deposit years); SIPP £60,000 annual allowance with basic-rate relief (+25% uplift) but locked until late 50s; hence ISA-first at 18, SIPP once career and housing are settled.
Challenge/homework (SPIVA): over long periods most active funds underperform their benchmark index net of fees, which is the evidence base for low-cost global index funds.

Support (scaffold)

Split the £294,000 into two jars first: £56,400 paid in vs ≈£237,600 growth — compounding becomes visible before any formula.
Sequence the arithmetic: years × 12 × monthly amount (contributions only), then layer growth on top.
Keep one worked row visible as a model for every new contribution level.

Stretch (challenge)

Fee drag: re-run £100/month over 47 years at 5.5% instead of 6% (a 0.5% fee) ≈ £262,000 — a ≈£32,000 lifetime cost of half a percent.
Why does the final decade add more pounds than the first three combined? Prove it from the guided table.
Real vs nominal: the 6% figure is a real return — what does that assumption quietly handle, and how would quoting nominal change the numbers?

Understanding your first payslip (KS3 · Year 7 / Year 8)
National Insurance — what it is, who pays it (KS3 · Year 8)
Tax codes and emergency tax — decoding the letters and numbers (KS3 · Year 8 / Year 9)
All lesson plans (KS1 · KS2 · KS3 · KS4) →