If you’re due a bonus, you might be wondering whether taking it as cash is your only option.
In some circumstances, your employer can pay your bonus directly into your pension instead. This can be a tax-efficient way of using your bonus, as an employer pension contribution can avoid Income Tax and National Insurance that may otherwise apply if you received the bonus as salary.
There can also be benefits for the employer, as pension contributions can generally be treated as a business expense, subject to the usual rules.
But there is a limit
Before deciding to pay a bonus into your pension, you need to check your pension annual allowance.
The standard annual allowance is £60,000 for the 2026/27 tax year. This includes contributions made by both you and your employer. You may also be able to use unused allowance from the previous three tax years through the carry-forward rules.
For example, if you’ve already had £40,000 paid into your pension during the tax year, adding a £30,000 bonus could take your total contributions above the standard allowance. Depending on your circumstances and any available carry-forward, this could result in a tax charge.
It’s also worth remembering that pension rules can be more complicated for higher earners or anyone who has already accessed their pension.
So, while paying a bonus into your pension can be tax efficient, it isn’t automatically the right option for everyone. It’s worth checking your available pension allowance before making a decision.
Need Advice?
At Champ Consultants, we provide clear, tailored advice based on your individual circumstances. If you’d like to discuss your situation, feel free to get in touch.
Please always seek professional advice before taking any action. We are happy to answer questions in future issues. Please send your questions through the contact us page on our website: www.champconsultants.co.uk
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