Bonus: Cash vs Pension Sacrifice

Compare taking your bonus as cash (after 40-45% tax) vs sacrificing it into your pension — see the real difference over time.

Base salary

Bonus amount

Growth rate (%)

Years to retirement

Take as Cash

Taxed at your marginal rate

Gross bonus£10,000

Income tax (40%)-£4,000

National Insurance (2%)-£200

Net cash in hand£5,800

Effective tax rate on bonus42%

Pension Sacrifice

Tax-free now, taxed on withdrawal

Bonus sacrificed£10,000

+ Employer NI saved (13.8%)+£1,380

Total into pension£11,380

Value after 20 years @ 6%£36,497

Retirement tax (est. 20%)-£5,475

Net from pension£31,022

✅

Pension sacrifice wins by £25,222

Over 20 years at 6% growth, sacrificing your £10,000 bonus into your pension nets you £25,222 more than taking cash today. The employer NI saving (£1,380) is a free boost.

How we calculate this

Cash bonus is taxed at your marginal income tax rate + NI. Pension sacrifice avoids both, and the employer also saves 13.8% NI which is typically added to your pot.

Future value assumes annual compounding at your stated growth rate. Pension withdrawal assumes 25% tax-free lump sum + 75% taxed at basic rate (20%) in retirement.

This does not account for lifetime allowance changes, annual allowance limits, or employer matching. Speak to a financial adviser for personalised guidance.

⚠️ Illustrative projections only — not financial or legal advice. Consult a qualified adviser before making financial decisions.