Retirement Planning information from Barclays Stockbrokers - Case study
Case study

Case study

The following example shows how much difference a bonus waiver can make to the size of your pension fund, compared to investing money from your net bonus.
Let’s say you’re 42 and want to retire at 65. You have a total annual income of £120,000. You’re due a bonus of £25,000. You want to invest £20,000 from your bonus in your pension plan.

To do this, you have two options:

Option 1 – Receive the bonus as taxed pay and invest the net amount into your pension plan.

Option 2 – Waive the bonus in return for your employer paying the same amount into your pension plan

​Option 1 – invest net
bonus into pension
Option 2 – waive
​Bonus intended for pension ​£20,000  ​£20,000 
​Net pay after 40% income tax and 2% NIC ​£11,600  ​n/a
​Personal amount invested into a pension ​£11,600 ​n/a
​Tax relief at source on investment at 20% (2013/14) ​£2,900 ​n/a
​Gross amount invested into pension (2013/14) ​£14,500  ​£20,000
​Tax relief via self assessment at 20% (2013/14) ​£2,900 ​n/a
Total Benefit ​£17,400  ​£20,000
Under option 1, and as a higher-rate taxpayer, you could claim an additional £2,950 in tax relief at 20% via self assessment. And you could invest this in your plan. However, this would happen during the following tax year and still leave you worse off than if you opt for a bonus waiver.

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