Hi, I'm Mrs. Wheelhouse, and welcome to our series of lessons on maths and personal finance.

I'm really excited to look at this with you.

So let's get started.

By the end of today's lesson, you'll be able to explain what a pension is and what impact it might have on your future circumstances.

Now, a pension is a tax-efficient way of saving money for retirement, and we're going to explore that today.

Our lesson is broken into two parts.

We're going to begin by planning for retirement.

"I cannot wait to retire.

I've been working for years," says a rather older-looking Jacob.

"If you stop working, how will you be able to afford the things you need or want?" says an equally older-looking Andeep.

Planning for retirement, when you choose to stop working, means planning for when your financial situation will change.

You will no longer have an income from your job.

So what can you do to ensure your financial security? "I've got a state pension.

That will help me," says Jacob.

A state pension is a regular payment from the government that you can claim when you reach the required age.

Currently this is predicted to be at age 68 for you, but that could change.

"Is everyone entitled to a state pension?" It's a good question, Andeep.

In fact, you need to have at least 10 qualifying years on your National Insurance record.

Now, this could be from working or if you receive National Insurance credits.

"So how much will I get?" Jacob wants to know.

Well, in 2024 to 2025, the full rate is 221 pounds and 20 pence per week.

The full amount increases each year so that people retiring are not negatively impacted by the changes caused by inflation.

You could receive less than the full amount if your National Insurance contributions were too low though.

Let's do a quick check.

If the 2024 to 2025 full pension rate is 221 pounds and 20 pence per week, what is the amount received in a year? Pause the video while you make your choice now.

Welcome back.

You should have gone for C.

True or false? Everyone has to retire when they reach the age that they can claim their state pension.

Is that true or is that false? And don't forget to justify your answer.

Pause the video and do this now.

Welcome back.

You should have said that it's false.

You can keep working after your state pension age is reached.

You can even claim your state pension whilst continuing to work.

"Hmm, that doesn't seem like a lot," says Jacob.

And he's got a point.

Andeep says, "Well, you won't pay National Insurance anymore, and you only pay tax if your income exceeds your personal tax allowance." Well, in 2024 to 2025, the standard personal tax allowance is 12,570 pounds.

So if the full pension rate for that year is 221 pounds and 20 pence per week, how much more can Jacob earn before he has to pay tax? Well, let's find out.

So in 2024 to 2025, the standard personal tax allowance is 12,570 pounds.

For the same year, the full pension rate is 221 pounds 20 pence per week.

So pause the video now and work out how much more Jacob can earn before he has to pay tax.

Welcome back.

Well, you should have worked out that Jacob's income from his pension is 11,502 pounds and 40 pence.

This means he can earn another 1067 pounds and 60 pence before he has to pay income tax.

It's now time for our first task.

Question one.

The 2024 to 2025 full pension rate is 221 pounds and 20 pence per week.

Your state pension increases by the equivalent of 1% for every nine weeks you defer.

So for part A, if you defer for a year, what would the percentage increase be? Part B.

If you defer for one year, what would your new weekly pension amount be? Part C.

If you defer for one year, what would your new annual pension amount be? And part D.

If you defer for one year, will you have to pay tax on your new pension amount? Pause the video while you work on this now.

Welcome back.

Let's have a look at these answers.

So for part A, if you defer for a year, then the percentage increase is approximately 5.

8%, which is what the government uses for calculations.

If I defer for a year, my new weekly pension amount will be 233 pounds 98 pence, which is an increase of 12 pounds and 78 pence.

Now if you use the rounded value, you'll have got an increase of 12 pounds and 83 pence.

So as you can see, very close.

Part C.

Using the exact value, we get an increase of 664 pounds and 58 pence so that the new annual pension amount is 12,166 pounds and 98 pence.

If you use the rounded value, you'll see that you got an answer similar.

And then part D, will you have to pay tax on your new pension amount? No.

Unless the personal tax allowance is lowered, you will not.

Well done if you've got this all right.

It's now time for the second part of our lesson today, which is on pension contributions.

"Whoa!" says Jacob.

"I am not happy with my predicted income when I retire.

What can I do?" Answers Andeep, "Along with any savings or investments you've made, you may also have a workplace and/or private pension." Phew, so Jacob and Andeep looked into the future, and Jacob was not happy with what he saw.

Luckily he's got the time to do something about this.

Depending on your employment, you may be automatically enrolled into a pension scheme by your employer.

Now, you will be told if this is going to happen.

A small percentage of your income is paid directly to the pension scheme, and you'll see this on your payslip.

And your employer pays a small percentage of your income as well.

Please note though that the employer's contribution does not come from your salary.

So this is on top of.

The government may also add money to your workplace pension in the form of tax relief.

This is because your contribution is taken out of your salary before deducting tax.

The percentage that you and your employer pay are determined by the pension scheme, but there is a legal minimum.

From April 2019, the minimum total contribution is 8%.

The minimum from your employer is 3%, and the minimum from you is 5%.

Remember, you can put more in.

That's just the minimum.

Let's do a quick check.

From April 2019, the minimum total contribution to a workplace pension is 3%, 5%, or 8%.

Pause the video and make your choice now.

You should have gone for C.

So from April 2019, the minimum total contribution to a workplace pension from your employer is what? 3%, 5%, or 8%? Pause the video, make your choice now.

You should have gone for A.

So from April 2019, the minimum total contribution to a workplace pension from you is 3%, 5%, or 8%? Pause the video, make your choice now.

Well done if you said 5%.

It's now time for our final task, and we're going to be doing a case study.

Jacob wants to estimate what his retirement income will be.

So he assumes that he works for 40 years, has a fixed income of 34,963 pounds, which is the median average salary in the UK for 2023.

He will receive the full state pension amount each year.

He pays 5% of his monthly income into a workplace pension.

His employer pays 3% of his monthly income into a workplace pension.

How much will Jacob and his employer have paid into Jacob's workplace pension by the time Jacob retires? So that's the first step towards working out a rough estimate for what Jacob's retirement income will be.

Pause the video while you work on this question now.

Question two, still part of our case study.

Jacob assumes he retires at age 68.

To generate a rough estimate for how much he will receive from his workplace pension, he uses the average life expectancy in the UK in 2024, which is 81 years.

So for part A, what will Jacob's yearly income be from his workplace pension? Part B, what will Jacob's yearly income be if his state pension is included? And part C, what will Jacob's yearly income be after tax is deducted, if applicable, assuming the 2024/2025 personal allowance? Pause the video while you work on this now.

Question three.

Luckily for Jacob, his workplace pension scheme grows in value over time.

To calculate the interest that will be applied to his pension, Jacob assumes a compound interest rate of 2%.

Having increased his pension total appropriately, part A, what would Jacob's yearly income be from his workplace pension? Part B, what would Jacob's yearly income be if his state pension is included? And part C, what would Jacob's yearly income be after taxes deducted, if applicable, assuming the 2024 to 2025 personal allowance? Pause the video while you work on these questions now.

Welcome back.

Let's go through these answers.

So we're starting off with working out an estimate for how much Jacob and his employer will have paid into Jacob's workplace pension by the time Jacob retires.

Well, while using these assumptions that he works for 40 years, has that fixed income, and pays 5% of the monthly income into a workplace pension, he pays 1,748 pounds and 15 pence into his pension every year.

So over 40 years, that 69,926 pounds.

Now this means that Jacob's employer pays 1048 pounds 89 pence into Jacob's pension every year.

And over 40 years, that's 41,955 pounds and 60 pence.

This means in total, Jacob's workplace pension will have had 111,881 pounds and 60 pence paid into it by the time Jacob retires.

So what will his yearly income be from his workplace pension? It'll be 8,606 pounds and 28 pence.

Remember, that's just from the workplace pension.

He's also got his state pension too.

And in part B, we add that in.

That makes Jacob's yearly income 20,108 pounds and 68 pence.

Does he need to pay tax on this? Yes, he does because he's definitely over the personal tax allowance.

This means that when we apply the basic rate to the excess, his yearly income is in fact 18,600 pounds and 94 pence.

Now in question three, we realised that Jacob's workplace pension is going to grow in value over time.

So we have to calculate his new yearly income.

Well, from his workplace pension, it will now become 19,003 pounds.

What will his yearly income be if his state pension is included? Well, that becomes 30,505 pounds and 40 pence.

Again, he's still got to pay tax, but he's only in the 20% tax bracket.

So this means his yearly income after tax is deducted is 26,918 pounds and 32 pence.

Well done if you worked this all out.

It's now time to sum up what we've looked at today.

There are different ways to save for retirement, and different options for pensions can be compared.

It is important to understand the effect of varying pension contributions on your financial future, and you saw that in our case study with Jacob.

Look at the difference a 2% increase each year led to for his overall yearly income once he'd retired.

Well done.

You've worked really well today, and I look forward to seeing you for more lessons in the future.

Goodbye for now.