Your marginal rate is what the next £1 you earn is taxed at, combining income tax, National Insurance and any clawbacks that £1 triggers. It matters because decisions like overtime, bonuses and pension contributions are all priced at the margin, not at your average rate.
The UK has notorious marginal-rate spikes: between £100,000 and £125,140 the Personal Allowance taper produces an effective 60% rate, and between £60,000 and £80,000 parents repaying Child Benefit through the HICBC can face similar effective rates. Pension contributions are often the cleanest way to step around these traps, because they reduce the income the tapers are tested against.
A £1,000 bonus paid to someone earning £105,000 loses £600 to the 60% taper zone and £20 to National Insurance, so £380 arrives in the bank. The same £1,000 sacrificed into a pension goes in whole. Little wonder bonus-time pension top-ups are so popular in that income range.
