Make your bonus go further with bonus sacrifice

Maybe you're already dreaming of a holiday, treating yourself or tackling a financial goal. Here’s something you might not know: there’s a simple way to make your bonus work even harder for your future, all while saving on tax. 

Let’s introduce you to bonus redirect… 

What is bonus redirect? 

Bonus redirect (or bonus sacrifice) is a workplace benefit, like childcare vouchers and cycle-to-work schemes, and it’s becoming a popular way to make your money go further. 

It’s sometimes called ‘bonus sacrifice’ because of how it works: you ask your employer to pay part or all of your bonus directly into your pension instead of your bank account. But ‘sacrifice’ is a bit strong so, at Cushon, we like to call it ‘bonus redirect’. Because you’re not giving anything up, you’re simply choosing to redirect your bonus to invest in your feel-good future! 

The best part is the tax saving. Bonus redirect is a government-supported arrangement that’s designed to make your money go further by helping you and your employer save on tax. Instead of seeing your bonus land in your bank account after Income Tax and National Insurance have taken their share, the whole lot lands in your pension tax-free! 

How does bonus redirect work? 

It’s easier than you might think!  

If you decide to redirect your bonus into your pension: 

• You could save money on Income Tax and National Insurance; 

• Your full bonus amount gets invested directly in your pension plan, instead of being cut down by tax before it even reaches your pocket; 

For example: 

Let’s say you’re earning £35,000 a year and are set to receive a £3,000 bonus.  

If you decide to take your bonus as cash, you’d typically pay 20% Income Tax and 8% National Insurance on that amount leaving you with around £2,160 after deductions. 

With bonus redirect, the full £3,000 can go straight into your pension, giving your retirement savings a real boost! 

And if you’re a higher-rate taxpayer, the benefits multiply.  

Bonus redirect above £100K: smart moves for high-flyers 

If you’re a higher-rate taxpayer, the benefits of bonus redirect are even more powerful. And if you find yourself in the 60% tax trap (for earnings between £100,000 and £125,000), managing your taxable income is surely a priority. 

For example: 

If you’re earning £105,000 a year and receive a £10,000 bonus, redirecting it into your pension can be even more rewarding.  

Instead of losing 40% to Income Tax and 2% to National Insurance, meaning £4,200 in tax and £200 in National Insurance, you can save over £4,400 in total. 

Plus, by redirecting your bonus, you help protect your personal allowance (which starts to decrease once your income exceeds £100,000), giving your take-home pay a valuable boost. Best of all, the full £10,000 goes straight into your pension, growing your retirement savings and maximising every penny you’ve earned. 

Redirecting high-value bonuses helps you grow your long-term savings quickly, while unlocking valuable tax benefits that you may otherwise miss. 

Is bonus redirect right for you? 

Only you can decide what’s best for your bonus. Maybe you’ve got plans to spend it now, or maybe you want to give your future financial wellbeing a lift.  

If you can afford to put your bonus away for the long term, bonus redirect is a smart, easy way to grow your savings without sacrificing your lifestyle. 

A few things to keep in mind: 

• You won’t be able to access the redirected bonus until you’re at least 55. 

• The value of your pension can go up and down. 

• If your bonus helps you reach a new tax bracket, redirecting it into your pension could help you save even more. 

• You can usually pay up to 100% of your earnings into your pension each year but there’s an annual limit and some exceptions. 

How to get started with bonus redirect 

Ready to make your bonus work even harder? Here’s what to do: 

Get in touch with your employer before your bonus is paid and ask about redirecting all or part of it into your pension. 

Boost your pension before the tax year ends 

Each year, there’s a maximum amount you can pay into your pension tax-free (currently £60,000). If you’ve got bonus money left and the end of the tax year is near, bonus redirect is a smart way to make the most of your tax allowance. 

Think you might go over the limit? You may be able to carry forward unused allowances from previous years – just another way bonus redirect keeps things flexible and empowering! 

Article by

NatWest Cushon