Receiving a bonus at work as a reward for a job well done is highly satisfying, but with bonuses subject to Income Tax and National Insurance Contributions, you face losing a significant portion of your hard-earned money. A bonus may even push you into a higher tax band, meaning that you receive an even smaller sum than expected.
With 44%1 of workers who received a bonus last year choosing to pay some or all of it into their pension, depending on your financial priorities, circumstances and timescale, this may be worth considering. Pension contributions benefit from 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.
Consumer Finance Specialist at Royal London, Sarah Pennells, commented, “There definitely isn’t a right or wrong way to treat your bonus if you receive one, but, while investment returns are never guaranteed, your bonus could be worth more in the longer run if you choose to invest it in your pension rather than spend it, and sacrificing your bonus into your pension is a savvy way to save on tax.”
We, your financial advisers, can help you understand the tax implications of your bonus, advise you on how best to invest it to stand you in good stead to meet your financial goals, and review and adjust your existing financial plan to reflect your new circumstances.
1Royal London, 2024
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
