Pension Contribution from Bonus

Jerryjones

Very long time lurker now needs urgent help!

I earn around 75k per year and so far have contributed around 29k to my pension since April 2016.

I have just been told that I will recieve a one off bonus of around 50k due to exceptional performance. This is to be paid in March.

After a lot of reading around about carrying foward my annual allowance the previous years have left over allowance of 2013/14 24k, 2014/2015 11k, 2015/2016 13k and 2016/2017 11k.

My options are:

1. Take it as taxable income.
2. Pay 25% of bonus into works pension and take rest as taxable income (my usual %age)
3. Pay entire amount into works pension as lump sum.

Would appreciate some advice on what to do and why? I have no immediate need of the bonus income.

Thanks,

Jerry

atush

Well obvs you would boost your pension very well, and save 40% HRT.

But do you also have a large emergency cash fund? Do you use your annual S&S isa allowance?

You have 75K less 29K plus 50 K income. that puts you at 96K income this year after your pension contrib. On that, 51K will pay HRT. So I would put the bonus into a pension using previous years allowances.

How large is your pension pot? How old are you? Will you reach the LTA?

EdSwippet

How old are you, and how much have you already accumulated in your pension? Will your company offer salary sacrifice NI uplift on 'bonus sacrifice'? Are you on the edge of child benefit payment thresholds?

If you are thirty years from retirement and with a healthy pension already saved, pushing more into the pension would likely give you LTA headaches, not to mention the likelihood of the government changing the rules many times over before you can access your pension. In that case, it would probably be better to just take the cash.

If you are one year from retirement and/or age 55 and with a modest (well sub-LTA) pension saved, then putting the entire bonus into the pension is likely to make good sense, as you can then reliably draw it out in future years at much lower tax rates than if taken as cash. Even more so if 'salary sacrifice' applies.

In between these two extremes, unfortunately, lies an exercise in risk management, probabilities, and flat-out prediction/guesswork.

Jerryjones

Thanks for the feedback. I am in my late forties with around 450k in my pension and 220k in ISAs to date

Plan to retire by 50.

I think I have decided to just put the bonus in the pension. Thanks.

jamesd

Pension seems like the best choice.

Given your retirement plan it seems that you should be putting most of your income into pensions each year, leaving enough outside to bridge the time from 50 to 55.

ex-pat_scot

You should certainly ensure that your income (net of pension contribution) is below £100,000 for this tax year, else you will be suffering 60% marginal tax rate on anything above this (actually anything between £100,000 and £121,000 ish is taxed effectively at 60%)