Workers face seeing more than 40% of their Christmas bonus swallowed up by tax and National Insurance – unless they take action before it hits their payslip.

Pensions experts warn that many employees do not realise bonuses are taxed in exactly the same way as salary, meaning a large chunk can disappear before it ever reaches their bank account.

Penfold, the digital workplace pension provider, says redirecting bonuses straight into a pension using so-called “bonus sacrifice” can help staff keep far more of what they earn – while giving their retirement savings a significant boost.

The firm says income tax and National Insurance alone can wipe out more than 40% of a bonus for higher earners.

For example, someone earning £75,000 who receives a £10,000 bonus could take home just £5,675 after tax and National Insurance – even before other deductions such as student loan repayments are applied.

Chris Eastwood, CEO and co-founder of Penfold, said many workers are left disappointed by how little of their bonus actually lands in their account. “December is a time of giving, but it’s also when financial pressures peak,” he said.

“A Christmas bonus can be a welcome boost, but also often easy to lose to tax and short-term spending. However, in redirecting a bonus into your pension, you can make the reward go much further.”

Under bonus sacrifice, employees give up some or all of their cash bonus and instead have it paid directly into a defined contribution pension before tax and National Insurance are deducted.

Eastwood said: “It is more important than ever for workers to understand how to protect the value of year-end rewards. As bonuses are taxed as regular income, many employees end up disappointed by what actually lands in their accounts after deductions.

“Bonus sacrifice ensures the full value goes through to your pension instead, avoiding these deductions entirely and keeping more of the reward working for your future.”

The move can also mean extra money from employers. Companies do not pay National Insurance on pension contributions, and many choose to pass on some or all of that saving into staff pension pots as an added boost.

“Through bonus sacrifice, UK workers can redirect some or all of their bonus into a defined contribution pension pot – before tax and NI are taken,” Eastwood said. “This can save thousands in tax, grow long-term savings, and in many cases increase employer contributions where NI savings are shared.”

However, timing is crucial. Employees usually need to arrange bonus sacrifice in advance by speaking to payroll or HR before the bonus is processed.

“Bonus sacrifice is quick and easy to set up, but it just requires preparation in starting those payroll conversations before the bonus is processed,” Eastwood said. “The end difference is stark and simple: instead of losing a chunk of your bonus to tax, 100% of the sacrificed amount goes into your pension.”

He said: “While you’re busy giving to others this holiday season, consider giving yourself the ultimate gift: a stronger financial future.

“Redirecting a short-term windfall into long-term gain is one of the smartest moves in planning for the future, without sacrificing festive cheer.”