Case 1
High earner bonus restructuring for retirement planning
A common frustration we see among high earners involves the significant tax impact on annual bonuses. One case I handled recently springs to mind as a perfect example of how restructuring can change a client's retirement outlook.
The client, David, was a 59-year-old Senior Operations Director earning a £135,000 salary with a consistent £40,000 annual bonus. Despite his hard work, he was frustrated that his bonus pushed him deep into the 45% tax bracket. After Income Tax, National Insurance, and the loss of his personal allowance, his effective tax rate was well over 50%, meaning he only kept around £21,000 of the £40,000 bonus. He felt there was little point to the bonus if he never effectively saw it.
I looked at his options to restructure how this remuneration was received. The most efficient solution was to redirect the bonus directly into his pension rather than his payslip. This meant the bonus was not subject to Income Tax, National Insurance, or the reduction of his personal allowance, ensuring every £1 of the bonus became £1 of pension. We also advised David to ask his employer to pass on their 13.8% National Insurance savings achieved through this salary sacrifice.
The result was highly beneficial. The employer agreed to pass on the full NI saving, adding an extra £5,520 to his pension annually, completely tax-free. Instead of receiving just £21,200 in his bank account, David now sees £45,520 going into his pension each year.
Cashflow modelling confirmed that his retirement at age 65 is now fully funded, and he feels in control rather than frustrated during bonus season.
Important Considerations
High earners must consider the Tapered Annual Allowance and the risk of breaching contribution limits. Pension contributions are locked away until minimum pension age, making them unsuitable for short-term access. Additionally, employer NI savings are due to be capped at £2,000 per year from 2025. The value of pensions can fall as well as rise, and you may get back less than you invested.
Tom Johnson - Financial Planner
Case 2
Turning retirement uncertainty into a clear, confident plan
We often meet clients who are earning well and saving regularly but have no idea whether their efforts are actually enough to achieve their goals. One case I handled regarding a retirement strategy springs to mind as especially memorable for the clarity it provided.
The client, Sarah, was a 52-year-old Senior HR Business Partner with £370,000 in combined pensions and £42,000 in ISAs. Despite these assets, she carried a £280,000 mortgage and felt a deep sense of uncertainty. Her pensions were scattered across providers and invested on autopilot, and she did not know if her goal to retire at age 60 with a £32,000 annual net income was actually achievable. She told us she felt like she was "doing everything right" but didn't know if it was working.
I started by building a full lifetime financial plan using cashflow modelling to see exactly when she could realistically retire and what would happen if markets fell. The analysis showed that she was close, but not quite on track. To bridge the gap, we consolidated her old pensions into a modern, lower-cost solution and adjusted the investment risk to match her specific timeline. We also set up a debt-reduction strategy to clear her mortgage by age 60 and increased her pension contributions through salary sacrifice to boost tax efficiency.
The result was that Sarah is now fully on track to retire at 60 with her retirement income meeting her target lifestyle. Her mortgage is set to be cleared five years earlier than planned, and she has reduced her investment charges. Most importantly, she finally feels in control of her money rather than overwhelmed.
Important Considerations
The value of pensions and investments and the income they produce can fall as well as rise, and you may get back less than you invested. This case study is for illustrative purposes only and does not constitute advice.
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