Put Bonus to Pension???

JayRitchie

Mick70 said:

If you sacrifice the bonus then yes you won’t get income tax and it can go into your pension pot .
however it will go into your pension pot as an Employer contribution so will get no tax relief added and when you come to want your pension later in life it’s likely to get taxed then (prob 20%), so don’t lose much sleep over the decision .
what you suggest sounds fine , half into pension and half into salary . Build your pension but if your young don’t get obsessed over it 👍

I think some people reading this may get confused and not see the benefits of putting money into their pension if they are in OP's position. 

"however it will go into your pension pot as an Employer contribution so will get no tax relief added ... "

The OP will get tax benefits (at least 42% - in which case for each £1k they could have had in their bank account they get £1.7k in the pension fund) because the money paid by the employer hasn't been taxed.

"when you come to want your pension later in life it’s likely to get taxed then (prob 20%)"

For most people (other than those who build huge pension balances) all the money they draw will allow 25% tax free and so long as tax rates stay the same they are likely to have a marginal tax rate of 15%.

For someone retiring before state pension age and not taking the tax free money as a lump sum they can draw about £16k a year without paying any tax so long as they don't have any other taxable income. As such a couple who both have decent amounts in their pensions can have an income of £32k a year without paying tax.

Dazed_and_C0nfused

JayRitchie said:

Mick70 said:

If you sacrifice the bonus then yes you won’t get income tax and it can go into your pension pot .
however it will go into your pension pot as an Employer contribution so will get no tax relief added and when you come to want your pension later in life it’s likely to get taxed then (prob 20%), so don’t lose much sleep over the decision .
what you suggest sounds fine , half into pension and half into salary . Build your pension but if your young don’t get obsessed over it 👍

I think some people reading this may get confused and not see the benefits of putting money into their pension if they are in OP's position. 

"however it will go into your pension pot as an Employer contribution so will get no tax relief added ... "

The OP will get tax benefits (at least 42% - in which case for each £1k they could have had in their bank account they get £1.7k in the pension fund) because the money paid by the employer hasn't been taxed.

"when you come to want your pension later in life it’s likely to get taxed then (prob 20%)"

For most people (other than those who build huge pension balances) all the money they draw will allow 25% tax free and so long as tax rates stay the same they are likely to have a marginal tax rate of 15%.

For someone retiring before state pension age and not taking the tax free money as a lump sum they can draw about £16k a year without paying any tax so long as they don't have any other taxable income. As such a couple who both have decent amounts in their pensions can have an income of £32k a year without paying tax.

Add in taxable interest and dividends that couple could have combined income (including the TFLS element of the pension withdrawal) of £47,720 without paying tax.

You need a very specific mix of interest and dividends but some people will no doubt be able to manage it!

kempiejon

Harvest £3k of capital gains and a further £3k from premium bonds, tax free uplift could top £50k for the couple.

It took me a while to catch on to using capital gains allowances; SIPPs and ISAs are generally the best place for savings & investment but those exceeding the allowances should still look out for tax mitigation.

ali_bear

There is one disadvantage of stuffing your annual bonus into a pension. When you make regular monthly contributions you are averaging out the ups and downs of the market at the time of purchase. This is a good thing if you are investing in more dynamic but risky funds for the long term. If you make less regular, but large contributions you degrade this averaging effect.