Sacrificing bonus to a pension
Discussion
I think this is a very starightforward yes, but just checking with the informed in here.
I have an opportunity to sacrifice my annual bonus into my pension. Alongside this, my employer will add a further 10% if I take this option.
As a higher rate tax payer, this feels like a no brainer.
I'm 55 in just under 3 years, so will be able to withdraw it tax free at that stage if I wish.
My thinking is that I normally use part of my bonus to pay for a holiday, but I might as well just draw that from savings as I'll not get the same return over 3 years as I will from the tax break and additonal bonus from my employer.
In fact, for the next 2 more years, I'd be mad to not do the same I assume?
I have an opportunity to sacrifice my annual bonus into my pension. Alongside this, my employer will add a further 10% if I take this option.
As a higher rate tax payer, this feels like a no brainer.
I'm 55 in just under 3 years, so will be able to withdraw it tax free at that stage if I wish.
My thinking is that I normally use part of my bonus to pay for a holiday, but I might as well just draw that from savings as I'll not get the same return over 3 years as I will from the tax break and additonal bonus from my employer.
In fact, for the next 2 more years, I'd be mad to not do the same I assume?
It's a no brainer.
But to reinforce the comment about withdrawing at 55 - you should be careful to only withdraw upto 25% of your pot, as withdrawing any more would be deemed as drawing down on your pension and will restrict future contributions to just £4k a year. My understanding is that you can take a tax free element, but still use your pension as a tax free wrapper to avoid income tax.
But to reinforce the comment about withdrawing at 55 - you should be careful to only withdraw upto 25% of your pot, as withdrawing any more would be deemed as drawing down on your pension and will restrict future contributions to just £4k a year. My understanding is that you can take a tax free element, but still use your pension as a tax free wrapper to avoid income tax.
Thanks all for the confirmation.
I won't be taking 25% tax free at 55, but just enough to clear my outstanding mortgage at the time.
But it gives me an option to place the money back in savings at the later time, if I wish to make up the shortfall created by spending money for holidays from savings for the next couple of years.
But still staying under the 25% rule.
I won't be taking 25% tax free at 55, but just enough to clear my outstanding mortgage at the time.
But it gives me an option to place the money back in savings at the later time, if I wish to make up the shortfall created by spending money for holidays from savings for the next couple of years.
But still staying under the 25% rule.
Catastrophic Poo said:
Our place doesn’t allow it.
I’m with those in the ‘do it’ camp!
When you get the bonus net of tax, what's to stop you paying it into your pension, and writing to the tax office to get your tax back? They might not allow paying the bonus straight into your pension as a "salary sacrifice" type deal, but I don't see what they can do about the other option. I’m with those in the ‘do it’ camp!
Gassing Station | Finance | Top of Page | What's New | My Stuff