Bonus as pension AVC via payroll - is it always the best option?

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patontheback

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Hello,

I’m due a bonus in work soon and I’m trying to figure out the most tax-efficient way to contribute to my pension through an AVC.

My company offers to pay the bonus as an AVC via payroll and that’s what I usually do. However, due to some uncertainty in work, I’m considering using the full bonus to boost my emergency fund instead.

That way, I still have the option to make an AVC to my pension later in the year, off my own back, if the uncertainty in work clears up.

However, is it more tax efficient to contribute via my payroll directly or ultimately does either option amount to roughly the same in terms of tax efficiency.

I’m on higher rate of tax and understand max pension limits. I guess my question is more the timing/mechanism of contributing AVCs to my pension.

Any insights would be much appreciated!

Thanks!
 
As above the tax is the same but the cash flow required is a bit different.
If you are on €60k in 2025 and get a €10k bonus in march. You take it as salary and receive €4800 after 52% tax.
You now potentially have the choice to make an AVC for 2024 tax year, if you have scope, before the end of october/mid November 2025. However, if you want it to be an avc of €10k you will have to add €5200 from your own funds to the 4800 and then receive 40% back after you make the tax return. It is best to make the tax return as soon as possible after the lump sum AVC.
If the AVC is made through payroll you just pay the usc and prsi but it counts in the 2025 tax year.
You could also keep the 4800 net until oct/Nov 2026 and then make the AVC for 2025 tax year if the uncertainty in the company has subsided.
 
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