Workers urged to give up extra payment to boost pension before April 6

Workers across the UK are being urged to give up an extra payment in order to boost their savings before April 6.

With just days left of the current tax year, savers are being encouraged to make the most of their pension plan's tax before Sunday, April 6, when the new tax year starts. In the 2024/25 tax year, workers can save up to £60,000 into private pensions and receive tax relief on these contributions. This includes the total amount paid into a defined contribution scheme in a tax year by you or anyone else (such as your employer) and any increase in a defined benefit scheme in a tax year.

So if you haven't reached this threshold for the current tax year, then it's possible to before April 6 by giving up one extra work payment.

According to pension experts, sacrificing a work bonus payment and redirecting this into your pension pot instead can give your savings an easy boost.

Insurance company Standard Life explains: "5 April is the last day of the current tax year - and there are things you can do to make the most of your pension plan's tax benefits before then.

"If you get a work bonus, you might have the option to put some or all of it into your pension plan. Doing this could save on tax and National Insurance deductions, meaning you could potentially keep more of your bonus in the long run. You could check if your employer offers this."

This option is known as a 'bonus sacrifice' and allows you to avoid Income tax and National Insurance on your bonus, whereas if you opted to keep it as cash then it would be subject to the same tax as your salary.

If you have a Defined Contribution Pension, then you can contribute all of part of your bonus into your pension, and it will be paid directly into your pension before any tax is deducted meaning you get to keep more of your money. If you have a Defined Benefit Pension then you won't be able to pay your bonus into your pension as the majority of these either pay a percentage of your final salary, or an average of your salary, as the final amount.

Pension experts Penfold explains: "The biggest benefit of paying your bonus into your pension are the tax savings. If you receive your bonus as cash, then you'll need to pay the corresponding National Insurance and Income Tax at your marginal rate. However, when you elect to add your bonus to your pension, it's completely tax-free. You get to keep the full amount."

The firm adds: "While bonus sacrifice offers many benefits, there are a few restrictions to keep in mind. There is an annual allowance of £60,000 a year that can be paid into a pension, or up to 100% of earnings. This includes employer and employee contributions. For those with a large annual bonus, you'll need to make sure you're under these limits or you could face a tax charge.

"However, if you've been part of a pension scheme for a few years, it's also worth noting you can temporarily boost your annual allowance by carrying forward your pension allowance from previous years."