FT readers expect to enjoy higher payouts this bonus season, but complain they are having to work harder for their bonuses as tax increases bite and performance metrics alter.
More than 1,000 readers provided detailed responses to our annual bonus survey, with just over half saying they anticipated a bigger or substantially bigger payout than last year.
Those working in banking and investment banking were most likely to report “substantial” increases as UK and US banks scrapped the EU bonus cap, enabling payouts of up to 25 times basic salary at some institutions.
High flyers in the legal profession and asset management sector also reported big increases, but the two worst performing sectors were energy and management consultancy, with the highest numbers of respondents reporting bonuses worth “substantially less” than last year.
Around one in 10 respondents said the metrics used to measure their performance had changed this year — the majority in banking. Some complained that “fixed pay inertia” had set in, so while their bonus had risen, overall compensation packages were fairly flat.
Readers’ detailed responses also expressed uncertainty about pay and performance in the year ahead. Will we see a blockbuster year of M&A as President Trump’s re-election stokes animal spirits and bonus caps are lifted? Or will a global trade war and tax changes in the UK Budget crush any prospect of a bumper payout next year?
Most readers who completed our survey in 2025 expected fatter payouts than last year, with 15 per cent in line for a bonus of between £250,000 and £2mn, compared with 10 per cent in our 2024 poll.
One in five respondents said they expected a bonus of between £100,000 and £250,000, up from one in eight last year. This year’s sample size was admittedly smaller, but in their detailed responses, many readers said that while bonuses had increased, so had the use of deferral mechanisms (see below).
Far from feeling richer, a mood of caution prevailed in readers’ detailed comments as bonus payouts struggled to keep pace with increased living costs including VAT on school fees and higher mortgage rates.
In total, 14 per cent of readers said they intended to spend most of their bonus — a two percentage point uptick on last year — and 17 per cent intended to use their bonus to pay down debt, assuming they were still in line to receive a payout.
“I wish I’d paid off my mortgage earlier instead of buying a boat,” regretted one retail executive, who said his bonus had been cancelled this year after weaker sales and higher costs resulting from Budget changes to employer’s national insurance.
Nearly one in three readers said October’s Budget had influenced how they would deploy their bonus money this year, with January’s increases to private school fees provoking the most ire.
One reader in financial services said he was setting aside his entire £50,000 bonus to address the “spiteful imposition” of VAT on school fees, predicting this would hit UK economic activity: “I know that many other parents are doing the same as me and spending far, far less on other items, so many businesses will be feeling the pinch.”
“I now need to earn significantly more than last year to cover VAT on school fees and mortgage costs, which are all rising,” said one reader in the oil and gas sector, who expects a substantially reduced bonus this year.
It wasn’t just parents who said the Budget had made them more cautious with their bonus money. “Spending less and saving more” was the second most commonly expressed response in our poll, with reasons cited including fears of redundancy, plus the risk of further tax rises and the UK economy weakening further.
“About 80 per cent of my peer group (male, aged 50+) have been let go in recent years, so I am somewhat hesitant in spending the bonus I received,” said one banker expecting a payout of more than £100,000. “I’d rather save or invest it to prepare for the inevitable.”
Of those who were intending to spend the majority of their bonus money, one in five said they would use the cash to pay down a chunk of their mortgage, and a handful of high-earning younger respondents said they intended to clear their student loans early. This is a far cry from the exuberance commonly associated with bonus season.
“Last year, I bought an aeroplane (light sport aircraft) but crashed it after three months. I will invest my bonus this year,” vowed one asset manager expecting a payout of between £50,000 and £100,000.
Despite the gloomy sentiments, this year has seen a five percentage point swing back in favour of investing the majority of any bonus — the most tax-efficient use of the cash.
The most noticeable jump was the increased attractiveness of stocks-and-shares Isas, with 55 per cent of this year’s respondents saying all or part of their bonus was destined for the tax-free investment accounts, compared with 33 per cent a year ago.
“Isas appear the most tax-efficient vessel, with fewest rumours of fundamental change,” said one banker expecting a payout of over £100,000.
Readers’ detailed comments showed that many have actively decided to deprioritise pension saving after inheritance tax changes were announced last year — the fifth most common response to the Budget question — even if they have yet to earn enough to be affected by the annual allowance taper, which reduces tax-free pension contributions to just £10,000 a year for the highest earners.
“I am deprioritising my pension, as I now fully expect the rules to be changed in the future and have lost trust in the system,” said one hedge fund manager expecting a bonus of over £100,000.
“Normally I would put a chunk of my bonus into my pension, but the tax rules keep changing and I am reasonably confident that before I retire they will be so detrimental to anyone with a pension pot worth having that there’s little point committing to it any more,” said a broker expecting a payout of over £100,000.
Nimesh Shah, chief executive of Blick Rothenberg, an accountancy firm, says he has noticed fewer clients opting to “pension their whole bonus” this year, with many also seeking to max out Isas for themselves, their partner and their children. Although Isas have no upfront tax relief, future tax-free withdrawals and greater flexibility over when funds can be taken have boosted their appeal.
“Under-50s in effect get a £21,000 Isa allowance, as they receive a £1,000 government bonus if they invest £4,000 into a Lifetime Isa,” he says. You have to be under 40 to open a Lifetime Isa, but can keep paying into it for 10 more years, although the funds are not accessible without penalty until age 60.
However, one group of survey respondents felt they had no choice but to pay more of their salary and bonus money into pensions — those caught by the so-called six-figure salary trap.
Readers commonly reported using salary sacrifice schemes to boost workplace pension contributions and reduce their taxable pay below £100,000 on paper. This way, they avoid high marginal rates of tax on the slice of income between £100,000 and £125,140 as the personal allowance is clawed back, and can retain valuable childcare benefits including “free” nursery hours and tax-free childcare that would be lost if one parent earned more than £100,000.
“Paying into a pension is really the only option for me,” said one reader working in insurance expecting a bonus of up to £50,000. “If I didn’t, my bonus would be subject to tax and national insurance at 62 per cent, plus I would lose my daughter’s nursery hours. I would love to use this money to help pay higher mortgage payments and ever-increasing nursery fees, but the maths doesn’t work.”
A sentiment commonly expressed among FT readers was to keep maximising tax allowances before the government further reduces them. Many feared the enlarged pensions annual allowance of £60,000 will be the next for the chop.
“I am female, in my 30s without children (but I may have them eventually) so I’m trying to put 30-40 per cent of my total pre-tax earnings into pensions, including my bonus,” commented one reader in tech expecting a £10,000 payout. “If in future I need to cut down on pension contributions due to the cost of having children, I can do so easily knowing that I have front-loaded a lot of the effort of saving for retirement, and will have over thirty years for compounding magic to take place.”
This year’s survey also showed one in three readers intended to invest some of their bonus money into general investment accounts (GIAs), compared to just one in five last year.
In their more detailed comments, plenty of readers noted the attractiveness of buying gilts within a general investment account. While income is taxable, no capital gains tax applies to investment growth, meaning bonds trading below their face value can deliver tax-free returns for investors who redeem at maturity or sell above the purchase price.
This year’s poll also suggested readers have a greater appetite for risk, with an uptick in those planning to use venture capital trusts (VCTs) and Enterprise Investment Schemes (EIS) to make long-term investments into smaller UK companies, attracted by upfront tax relief of 30 per cent.
Adam Walkom, co-founder of Permanent Wealth Capital, a financial planner, says that while clients were intrigued by the tax benefits, they were wary of the risk that smaller UK firms could take an outsized hit in an economic slowdown.
“The advantage of a VCT is that it’s a pooled approach, so you might own one VCT fund which has say 30 of these particular type of companies,” he says. “However, when you compare the investment charges to standard index funds, they look horrific. VCT funds commonly have annual fees somewhere between one and two per cent; there’s 1 per cent dealing charges, and you could have to pay an exit fee of 5 per cent to get out, which has to be taken into consideration.”
Despite the lack of tax advantages, the proportion of readers who planned to invest some of their bonus money into cryptocurrencies has nearly doubled in a year, at 6 per cent, as President Trump vows to make the US the “crypto capital of the planet”.
“A bullish year for crypto, so I will invest my bonus in that along with my Nasdaq and S&P trackers,” said one UK-based recruitment consultant, adding that the eventual capital gains hit on crypto had not put him off.
At the other end of the risk spectrum, many readers confessed they were in “mortgage pay down mode” this bonus season, as fixed-rate deals expire, and interest rates look set to remain higher for longer.
“Mortgage reduction is the only game in town,” said one reader in asset management whose five-year fix has one year left to run. They intend to sink their entire £100,000 bonus into this (note that after additional rate income tax and National Insurance, this will be reduced to £53,000).
“I’m using my bonus to pay down the mortgage to reduce the volatility arising from the variability in income, which is a constant concern for most people in the financial industry,” commented a broker who expects to receive a bonus of over £50,000.
“City workers could be on a nice package of £300,000 but when you look at their net disposable income after tax, mortgage payments and higher fees for a couple of children at private school, there’s often not an awful lot left,” says Adrian Anderson, managing director of mortgage broker Anderson Harris.
He said high earners on interest-only mortgages were the most exposed to “payment shock”. In the days of rock-bottom rates, many clients viewed interest-only loans as “paying a cheap ‘rent’ secured against an asset that was going up in value.” Mortgage rates have shot up since the pandemic, but prime central London property values have not, hence more clients are using bonuses to pay down debt and reduce monthly repayments.
An underlying sentiment expressed in readers’ detailed comments was the desire to sell up in the UK and move somewhere warmer with lower tax rates — and older readers with large pensions were not the only ones.
“I’m saving my bonus with a view to leaving the UK in the next five years,” said one reader working in venture capital, who expects a bonus of up to £50,000. “As an EU citizen from a country where there are good jobs and significantly lower costs of raising children, it makes me more annoyed at tax changes. If the tax environment was different I would buy a bigger home here and be happy to stay indefinitely.”
The changing shape of incentive pay
This year’s survey shows that the lifting of the EU-era bonus cap has allowed banks to reward their top talent with bumper payouts, writes Jamie John.
The very best performers at US banks in the UK have received uplifts of 40 to 45 per cent, says Matt Nicholson, head of Europe at recruiter Selby Jennings, who says the “biggest shift in the market” has been a push by investment banks to compete with buy-side firms on pay. “Household-name banks are now looking at the hedge fund world as their competition,” he said. “The bonuses there are seriously good”.
However, there are large disparities between the very top performers, who can earn vast sums in incentive pay, and those who fall short of those lofty heights. Many readers told us they felt short-changed by their employers, expressing frustration that base salaries had stagnated while the proportion of deferred bonuses had risen, meaning that employees will need to lock in with their current employer for longer to access the money gradually.
“I’ve been here for 15 years and have never seen people so angry, at all levels,” said one banker, who added that all but the highest revenue generators were expecting only single-digit bonus rises in percentage terms — “not exactly inflation crushing”. So-called “material risk takers” at the firm, however, could theoretically earn a bonus of up to 25 times base pay.
Not all is well on the buy-side, though. Asset and wealth managers bemoaned a lack of transparency in the way bonus payments were calculated, with one complaining his employer had adopted a new “performance rating (read: management’s whims)”.
Bonuses “tend no longer to be driven by one profit metric”, explains David Ellis, head of strategic reward advisory at accountancy group BDO. Companies have instead come to rely upon a broader range of performance measures such as customer satisfaction, meaning that while total bonus pools might have increased in line with profits, the rise “has not been shared between participants on a pro-rata basis”.
Looking forward, Andrew Patterson, partner at Clifford Chance, a law firm, expects prospects for UK-based bankers will continue to benefit from the lifting of the bonus cap and a further simplification of rules on bankers’ pay expected later this year. The Prudential Regulation Authority has proposed the reduction of deferral periods and allowing bankers to earn dividends on share-based bonuses while they are deferred. Patterson thinks the changes will together put “UK on a more even footing with key global financial centres outside the EU” helping to “attract and retain top talent”.
All illustrations by Jamie Portch
