Workers urged to protect Christmas bonuses from tax through pension sacrifice

Workers could lose more than 40% of their Christmas bonuses to Income Tax and National Insurance (NI) unless they redirect the money into their pension, according to pensions provider Penfold.

With year-end bonuses being paid alongside rising seasonal spending, Penfold warned that bonuses are taxed in the same way as salary, meaning a significant portion can be lost before it reaches employees’ bank accounts.

In some cases, further deductions such as student loan repayments can reduce take-home pay even more.

Penfold pointed to an example of an employee earning £75,000 who receives a £10,000 bonus but takes home just £5,675 after tax and National Insurance.

The firm sais “bonus sacrifice”, where a bonus is paid directly into a pension before tax and NI are applied, offers a way for workers to retain the full value of their reward.

Chris Eastwood, CEO and co-founder of Penfold, said: “December is a time of giving, but it’s also when financial pressures peak. A Christmas bonus can be a welcome boost, but also often easy to lose to tax and short-term spending. However, in redirecting a bonus into your pension, you can make the reward go much further.”

He added that understanding how bonuses are treated for tax purposes is increasingly important for employees.

He said: “It is more important than ever for workers to understand how to protect the value of year-end rewards.