How does your 2023 bonus measure up?

As investment banks slash their bonus pools, you might not be happy with the size of your payout this year — but many FT readers feel that hanging on to their jobs is the real bonus.

The results of our annual bonus survey show that even the wealthy are managing their personal finances more cautiously as the risk of recession looms. This year, readers are much more likely to be stashing their bonus cash rather than splashing out on luxuries.

More than half of those polled expect their 2023 bonus to be less or no greater than what they received in 2022, and one in 10 expect it to be substantially less.

However, not everyone is suffering from the bonus round blues. Based on nearly 700 detailed responses, just over one in four readers still expect to bag a more generous payout than a year ago.

Regardless of how much or how little you might receive, April’s tax changes mean the need to save and invest your bonus money in the most tax-efficient way has never been greater.

There are lots of practical tips about how to do this alongside our analysis of the results below — plus why readers think the removal of the banker bonus cap will do very little to boost future payouts.

Higher or lower?

“The lack of global dealmaking activity means very thin gruel indeed when it comes to bonus season,” says Jason Hollands, managing director of Evelyn Partners, a wealth manager.

The bumper payouts our bonus survey recorded one year ago reflected the surge of M&A activity in the previous 12 months as global economies rebounded after lockdowns. Last year, three quarters of respondents said their 2022 bonus was bigger or substantially bigger than what they had received in 2021.

However, 2022 brought about a synchronised downturn in equity and bond markets, and recessionary fears continue to reduce appetite for deal making and raising money on the markets.

In this year’s survey, 31 per cent of respondents said they expected their bonus to be less or substantially less, and a further 25 per cent thought it would be about the same as last year.

With less money flowing in, Hollands was not surprised by the cautious sentiment expressed elsewhere in readers’ responses: “It’s just a dose of reality setting in.”

However, the FT survey is not restricted to those working in investment banking. Although not everyone chose to provide details, we received responses from readers working in corporate banking, trading, private equity, wealth and asset management plus tech, management consultancy and the legal profession where rewards have been more generous.

James Warnaby, executive director of the specialist financial services recruiter Selby Jennings, says he wasn’t surprised to see that overall, 44 per cent of readers polled were expecting a higher payout this year.

“From a client or employer perspective, firms are conscious that they need to retain their top talent,” he says, adding that if a promotion was part of an investment banker’s 2023 package, their basic salary could have increased even if the size of their bonus has reduced.

From 2014, annual bonuses for EU-based bankers have been capped at 100 per cent of basic pay, or 200 per cent with shareholder approval. Over the years, base salaries have risen to compensate, with variable performance-related pay making up a smaller part of overall remuneration than it has done historically.

Some readers worry that when the banker’s bonus cap is eventually scrapped — as the government promised in last year’s “mini” Budget — the huge increases to base salaries that it has prompted could stall, or even go into reverse, leaving them much more exposed to large swings in incentive pay.

“Not expecting ever to get another pay rise,” said one banker in his forties. “The question is, will the banks have the balls to cut very high base salaries?” added another banker in his forties.

“Employers don’t want to take that battle on,” says Warnaby. As new hires are made, “maybe we will start to see the structure of total remuneration vary slightly, but it won’t lead to a total overhaul”.

Save, spend or invest?

Although the majority of readers still plan to invest some or all of their 2023 bonus money, rising job insecurity combined with the higher cost of living has produced a significant shift in attitude.

When we asked readers about their biggest financial priority for their bonus money, just over half (53 per cent) said they planned to invest it, down from 58 per cent last year.

Saving the money came second, grabbing 20 per cent of this year’s vote compared with 18 per cent last year.

In third place, just over 15 per cent of readers said they intended to use their bonus to pay down debt as mortgage rates increase, and there was a small rise in the numbers who said they would spend the money.

In their qualitative responses, more than one in 10 said that fear of redundancy was the biggest factor guiding their financial decision making this year.

“Not sure how long till redundancies get me, so I need to save for future school fees,” said one reader in his forties working as a derivatives trader.

“Financial services has always been [an] insecure industry with the risk of losing your job at very short notice, therefore I always prefer to have cash on hip,” another reader commented.

Warnaby says so far, redundancies in the banking world have been happening at “the two extremities” — very senior people at managing director level, and at analyst level, where some over-hiring has occurred over the past 18 months.

Regardless of recessionary pressures, he thinks there will be a lot of movement in the jobs market this year: “A high percentage of people are not happy [with the bonus round this year] and we’re getting a lot of calls from people who want to see what else is out there.”

Worries about job security were also expressed by readers working in the fields of tech and asset management, many of whom feared that being at the older end of the age range would make it harder to find another role quickly.

These fears, combined with 10 consecutive Bank of England interest rate rises, helped convince nearly 16 per cent of readers that paying off a chunk of their mortgage will be the best use of their bonus cash, up from 13 per cent last year.

In the qualitative responses we received, rising mortgage rates topped the financial worry list. Some of this year’s respondents said they would use their bonus to clear their entire mortgage debt. Others intended to repay a big enough chunk to access the best rates on a new fix.

“When our fixed rate expires in December, we will find ourselves paying over £1,000 extra a month in interest alone so it makes sense to save part of the bonus and pay a lump sum towards our mortgage,” said one reader in her thirties.

Some with fixes looming further ahead wanted to retain “maximum flexibility” by keeping bonus cash in savings accounts or Premium Bonds. When refinancing looms, they can take a view based on where interest rates are by then, but they can also access the cash in an emergency.

However, younger survey respondents tended to have designs on spending, rather than saving, any extra cash.

Looking across his contemporaries in investment banking, one reader in his thirties noted the “increasing reliance on bonus money as disposable income rather than for long-term investing purposes.”

Others intended to use their bonus money to supplement their increased living expenses, including higher mortgage repayments. “This is unfortunately the reality for many. Bonuses don’t necessarily mean extra cash, especially since all of these costs have risen so massively,” said Benjamin, a reader in his thirties working in financial services.

Saving grace

Of those who said they intended to save the majority of their bonus, most had no specific goal in mind (38 per cent) and simply wanted to build up a cash war chest they could potentially raid in the coming years.

In their more detailed comments, many readers said they feared next year’s bonus payout would be even lower, adding to the air of caution.

Just under a quarter (24 per cent) said they were saving to buy a property, but one in 10 said they were saving this year’s bonus towards future school fees.

“My pot for school fees is shrinking fast. Hopefully I will be out of it before Labour get in and add VAT, which would push me over the edge,” said one reader in his fifties.

Hollands agrees that this is a commonly expressed fear among his client base. “The possibility that in a couple of years, school fees could be 20 per cent higher is definitely something people want to prepare for,” he says.

This was not the only way readers were planning on using their bonus money to help their children. Plenty mentioned helping with property deposits, but increasingly, parents want to build up funds for university costs.

“Changes to the student loans system in September mean I’m considering paying upfront for my child’s university costs,” said one reader, a management consultant in his fifties.

Many readers noted rising rates on cash savings, but added they’d be using Cash Isas or Premium Bonds to avoid paying tax on the interest.

Higher rate taxpayers get a £500 personal savings allowance, but this is removed for additional rate taxpayers — and from April, it will take an income above £125,000 rather than £150,000 to gain membership of the 45 per cent tax club.

Time to invest?

For readers who said they intended to invest all or part of their bonus, stocks and shares Isas remained the most attractive investment choice as limits on pensions bite.

Over half of respondents said tax limits were restricting what they could invest into their pension, with 28 per cent capped out entirely and a further 23 per cent restricted by the annual allowance taper.

However, plenty of readers with an income between £100,000 and £125,000 said they would sacrifice bonus cash into their pension to avoid the 60 per cent marginal rate as the personal allowance is tapered away.

“I want to max out my previous years’ unused pension allowances to get below the taper limit this year while I can,” said a software developer in her twenties.

Just over half of those surveyed said they intended to invest using Isas (look out for FT Money’s Isa special issue next month). Over one-third said they would also use general investment accounts after their £20,000 annual Isa limit had been used up.

In the detailed comments, plenty mentioned the attractiveness of dividend paying shares and other income-producing assets in tough times.

“Fear of redundancy means you need to invest wisely, such as a second home that you can rent out,” added a reader in his forties.

There was a notable drop in the number of readers who intend to invest part of their bonus money in crypto (2 per cent, versus 7 per cent last year).

Despite the risky nature of investing in early-stage companies via venture capital trusts (VCTs) and the Enterprise Investment Scheme (EIS) some 5 per cent of those polled said they intended to use these tax-efficient structures, down from 7 per cent a year ago.

“These are more esoteric investments, but as more people hit frozen tax thresholds, we are only going to see continued growth and interest from investors who want to get their income tax bills down,” says Hollands.

“We’re seeing a fairly brisk fundraising season, with 23 VCT schemes currently raising money. It probably won’t be as strong as 2022 when over £1bn was raised for the first time, but there’s a growing audience of potential investors out there.”

Spending it

The final trend to pull out from our survey is the growing number of readers who intend to spend their bonus cash. This will be driven by necessity for some, but other readers were keen to stress how they wanted to enjoy the cash — and this year, holidays were the top answer.

“The grim economic climate and hideously high tax burden means I need a holiday to look forward to,” said one reader in his thirties.

Carrying out home improvements has slipped back to second place, running level with those who wish to use the money to pay down their mortgage.

Volatility in financial markets in the intervening 12 months led to regrets among some readers who had invested all of their bonus money.

“I put my bonus into my pension last year. My pension pot has gone down since then, so I would rather get my eyes lasered and go on holiday to enjoy the money this time round,” said one female banker in her forties.

Despite more straitened times, there was a small rise in the number of readers who ticked the “bling” category and intended to spend some of their bonus on a new watch or jewellery.

One wealth manager in his sixties commented: “The spending drought and managing rising household expenses means my bonus this year is one for me and my wife to enjoy!”