Receiving a bonus at work is a rewarding experience, but it’s important to remember that bonuses are subject to Income Tax and National Insurance Contributions, which can significantly reduce the amount you take home. A substantial bonus may even push you into a higher tax bracket, further diminishing your net gain.
Interestingly, 44%1 of workers who received a bonus last year chose to put some or all of it into their pension. Depending on your financial goals, circumstances, and timeline, this could be a beneficial option for you. Pension contributions enjoy tax relief at the highest rate of Income Tax you pay—currently 20% for basic rate taxpayers and 40% or 45% for higher or additional rate taxpayers.
Sarah Pennells, Consumer Finance Specialist at Royal London, notes, “There isn’t a right or wrong way to use your bonus but investing it in your pension could potentially yield more in the long run. Sacrificing your bonus into your pension is a savvy way to save on tax.”
As your financial advisers, we can help you understand the tax implications of your bonus, advise on the best investment strategies and adjust your financial plan to reflect any new circumstances and goals.
1Royal London, 2024
It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.