Putting bonus into Pension

[toasty]

Hi, apologies if this has been asked before but I couldn't find anything.

I'm 53 and am expecting a bonus in the new year of c£8k before tax.

I also have a pension pot of c£250k and have two pensions into which I'm contributing c£2k/month.

Can I put my bonus into the pension tax free and withdraw it as part of the 25% tax-free when I'm 55?

Even after 55, could I do this with future bonuses?

I'm guessing not but it's worth asking.

[markiii]

depends.

in principle yes you can put in your pension
once in your pension yes 25% can currently come out tax free

the caveats are

you must have earnt at least 8k in the tax year you contribute it. 2k a month contributions suggests at £24k contributed your under the contribution limit so as long as you earnt at least 32K that year you can put it in

tax relief will depend on what your yearly earning are in the year you contribute

if the criteria stack up then in principle you could get 40% tax relief putting it in, then take out 25% tac free when you draw the pension.

Edited by markiii on Tuesday 12th December 10:09

[toasty]

Thank you, sounds like a plan. I am in the 40% bracket so it seems worthwhile.

[plenty]

Any relevant income can be put into pension regardless of main salary or bonus.

You can contribute to your pension at any age if you have relevant income. The thing to be aware of is the Money Purchase Annual Allowance (MPAA). Once you start drawing down on your pension you trigger the MPAA and your annual contribution limit drops from £60k to £10k.

However, withdrawing your entire tax-free lump sum in one go does not trigger the MPAA. The rules are a little convoluted so worth spending a bit of time reading up.

[supersport]

plenty said:

Any relevant income can be put into pension regardless of main salary or bonus.

You can contribute to your pension at any age if you have relevant income. The thing to be aware of is the Money Purchase Annual Allowance (MPAA). Once you start drawing down on your pension you trigger the MPAA and your annual contribution limit drops from £60k to £10k.

However, withdrawing your entire tax-free lump sum in one go does not trigger the MPAA. The rules are a little convoluted so worth spending a bit of time reading up.

You have to earn enough in the current tax year to cover any gross contribution, including using up previous years unused allowance.

[tuffer]

One thing to be careful of is that it may affect your tax code the following year. I had an issue where I put in a lump sum so the following year HMRC just assumed I would be putting in the same amount and changed my tax code accordingly, I realised and by the time I had it corrected I had quite a lump sum to pay the tax man.

[supersport]

When you do your tax return just say it was a one off payment if you're not going to do it again.

[FunkyCEO]

If you salary sacrifice will also save NI on the bonus

[MattS5]

toasty said:

Hi, apologies if this has been asked before but I couldn't find anything.

I'm 53 and am expecting a bonus in the new year of c£8k before tax.

I also have a pension pot of c£250k and have two pensions into which I'm contributing c£2k/month.

Can I put my bonus into the pension tax free and withdraw it as part of the 25% tax-free when I'm 55?

Even after 55, could I do this with future bonuses?

I'm guessing not but it's worth asking.

I did exactly this last year (in fact asked the very same question here) and my employed then added another 10% to the contribution, which was handy.
Worth checking to see if they offer it

[toasty]

Thanks all. I’ll certainly put the money in and just make sure of any downfalls when I withdraw.

[eliot]

dont forget that taking out your 25% at 55 means you cant take 25% out several years later when (hopefully) your fund has grown and 25% now represents a much larger figure.