Increasing Pension To Avoid 40%

Tuharax

Salary: 35000
Taxable benefits: 13895
Pension: 2%
Student Loan: Payment Plan 1
Potential Bonus; up to 4000

When I use ‘The Salary Calculator’ there is no difference in tax home pay when I put a bonus figure in and no bonus figure. However, I know that with my taxable benefits and a bonus I end up slightly into the 40% bracket next year (>50k).

Is there any benefit of not taking some of my bonus or increasing my pension contributions to try and stay out of the 40% tax bracket? The way it seems to be calculated when I have used online calculators is that I pay higher tax in the ‘bonus period’. However, take home pay seems to different if I add the bonus directly and put a figure of 39000 into gross pay compared with using the bonus box.

Linton

You only pay 40% tax on that amount by which your total taxable earnings exceed the basic rate band. Assuming you have the standard tax allowance and already pay 2% 0f £35000 in pension this equals:£35000+£13895+£4000-£50000-£700=£2195.

Giving up the 60% of £2195 so you dont pay the other 40% in tax seems extremely foolish. If you increase your pension contribution by £2195 you wont pay any 40% tax.

Only paying 2% of your salary into a pension seems very low. How much does your employer pay? If you want a comfortable and/or early retirement you should probably review the situation.

Tuharax

My company policy is poor. I think they match my 2% but they wouldn't match any higher. I am only 28, and I have been in this role for a year. I kind of have 30 as an age in my head to sort all my pensions and retirement plans out.


I guess i would need to increase contributions by 6-7% to remove that 2195. Maybe I should go up to 10%. However, this would reduce my take home and budgeting would be tight. Maybe I should look at a private pension or a LISA.