What if I put my annual bonus into my pension?
A bonus feels like free money — but putting it into your pension is arguably even better. You pay no Income Tax or National Insurance on it, and it compounds tax-free for years. Adjust the sliders to see the illustrative long-term impact.
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Each £5,000 bonus paid into your pension arrives gross — the taxman gives your Income Tax back immediately. As a 40% taxpayer, a £5,000 pension contribution only costs you £3,000 of take-home pay. Over 25 years, those bonuses could illustratively compound to £291,000 in your pension pot.
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How does paying a bonus into a pension work?
When you contribute to a pension from your pre-tax income (salary sacrifice) or claim back tax relief via your employer, you effectively receive your Income Tax and National Insurance back. For a 40% taxpayer, every £100 in your pension effectively costs only £60. This is one of the most tax-efficient decisions available to UK employees.
If your employer offers salary sacrifice — where the bonus is paid directly into your pension before PAYE — you also avoid National Insurance (currently 8% for employees, 13.8% for employers) on the bonus amount, making it even more efficient. Check with your employer or payroll team whether this is available for bonus payments specifically.
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Illustrative purposes only. Tax relief rates and pension rules can change. This calculator assumes annual bonus contributions, a fixed growth rate, and does not account for pension charges, the Annual Allowance (currently £60,000/year), or changes in tax rates. Pension drawdown tax and rules are not modelled. For personalised advice, consult an FCA-authorised financial adviser or tax professional.