Here’s a startling fact: a bp employee earning £99,000 with two young children has more money to spend than someone earning £156,000 in the same situation.
How is this possible? It’s because of something called the ‘£100,000 cliff edge’ in the UK tax system.
What happens at £100,000
When your income crosses £100,001, three things happen at once:
- You lose tax-free childcare – worth up to £2,000 per child annually
- You lose 30 free hours of childcare – worth about £11,440 per child annually
- Your personal tax allowance starts disappearing – creating a 60% tax rate on income between £100k and £125k
Let’s put this in real terms. If you have two children under three:
- Tax-free childcare loss: £4,000
- Free hours loss: £22,880
- Total childcare support lost: £26,880
And this happens the moment you earn just £1 over £100,000.
The brutal maths of earning more
Imagine you earn £99,000 and get a £2,000 bonus, taking you to £101,000.
What you keep from the bonus:
- Bonus: £2,000
- Income tax (40%): -£800
- Lost personal allowance tax: -£200 (losing £500 of allowance taxed at 40%)
- Cash in your pocket: £1,000
What you lose:
- Childcare support: -£26,880
Your actual result: -£25,880
That £2,000 bonus has cost you nearly £26,000. You’re worse off despite earning more.
The impact is severe until your salary reaches around £156,000.
This trap catches many bp employees. Engineers, managers, technical specialists often earn between £100k and £140k. Some turn down promotions. Others accept them without realising their overall financial position will worsen despite the higher salary.
The solution that works
Here’s the good news: you can fix this with pension contributions. When you pay into your personal pension, it reduces your ‘adjusted net income’ – the figure that determines your childcare eligibility.
Important: This needs to be personal contributions to your own pension, not the pension matching that bp already does through your salary.
Let’s see how it works:
Example: You earn £105,000
- You need to reduce your income by £6,250 to get back under £100,000
- You pay £5,000 into your pension from your bank account
- The government automatically adds 20% tax relief (£1,250)
- Total pension contribution: £6,250
- Your adjusted income: now £98,750
The result:
- Money moved to pension: £5,000
- Childcare support restored: £26,880
- Net benefit: £21,880
- Plus your pension has grown by £6,250
- Plus you can claim another £1,250 back as a higher-rate taxpayer
- After tax relief: you’ve moved £3,750 from your bank to your pension and gained £26,880 in childcare support
Getting it right matters
The pension contribution must be personal, not through bp’s salary sacrifice scheme. Salary sacrifice reduces your official salary, which can affect how other benefits are calculated and may complicate your adjusted net income calculation. Personal contributions from your bank account keep things straightforward whilst still giving you full tax relief.
This situation frustrates many bp employees. The promotion to £115k looks great, but you end up with less money than before. The career path to Senior Leader roles can mean years of being financially worse off.
The problem gets bigger with more children. With two or three children under five, you can lose over £30,000 in childcare support annually. Add the 60% tax rate on top, and you need huge salary increases to make up the difference.
Take action now
For bp employees currently in this bracket, map out your specific situation. Number of children, ages, childcare costs, your precise adjusted net income. The pension contribution needed varies, but the principle remains: strategic pension planning can restore tens of thousands in lost support.
The £100,000 threshold hasn’t moved since these policies began. With inflation and salary progression, more employees cross this line every year without realising the financial impact.
The bottom line
If you’re a bp employee earning between £95k and £155k with young children, this affects you. Understanding it means you can plan the pension contributions needed to protect your position. Ignoring it means thousands lost unnecessarily.
Between £100k and £156k, the system is broken. You can navigate around it with pension planning, but you can’t escape the fundamental absurdity: earning significantly more means having significantly less.
Who can you think of with young children approaching or in the £100k-£156k salary range? Share this article with them. It could save them thousands every year.
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Want to learn more about how we help bp Leaders optimise their finances? Explore our bp services page here. If you’d like to discuss your specific situation, you can get in touch with our team directly.
This is for educational purposes only. It’s not personal advice and we’re not recommending any specific tax planning strategies. Everyone’s situation is different, so what’s right for one person might not be right for another. Tax rules can change and depend on individual circumstances.
While we have extensive experience helping bp employees and alumni optimise their benefits, Emery Little operates independently and is not affiliated with or endorsed by the bp group, including BP Pension Trustees Limited, on behalf of the BP Pension Fund. This allows us to provide objective, independent guidance focused solely on your best interests.
