HMRC state pension tax grab - how you can keep more of your money

It's September, which means we can finally gauge how much state pension rates will rise next year. For many, it'll be a welcome boost - more than £500 extra per year if you're claiming the new state pension. For others, it could mean facing income tax on their pension for the first time, or seeing more of it handed to HMRC.

More than 8.5 million pensioners paid income tax last year, and over one million of them fell into the higher 40% tax bracket - a figure that's climbing every year. This situation is primarily due to a toxic blend of large annual uplifts under the state pension "triple lock" and the Government's decision to freeze the personal allowance at £12,570 until 2028. This is the sum you can earn tax-free per year.

This stealth tax, beloved by all Treasuries, means that while headline tax rates don't change, rising income and frozen personal allowance thresholds quietly drag more people into higher tax brackets. Paying tax as a pensioner used to be an exception. Now it's flipped to be the norm. To help with future tax planning, here's what to expect from April 2026.

Based on the triple lock, which ensures payments rise annually by the highest figure out of wage growth, inflation, and 2.5%, the state pension is likely to rise by wage growth at 4.7%.

This means the full new state pension could rise to £241.05 a week, up from £230.25, or £12,534.60 per year - an extra £561.60.

Anyone receiving the full basic state pension (for those who retired before 2016) should see a rise to £184.75 a week, or £9,607 a year, up by £431.60. If you find you may be edging into taxable territory, now may be a good time to review your finances.

First, be strategic with how and when you draw your private pension. Investment experts at Vanguard recommend only taking the income you actually need, leaving the rest to grow and delay additional tax bills.

Next, prioritise sheltering other savings and investments, making full use of tax wrappers like ISAs. Interest and dividends earned within an ISA remain tax-free, so perhaps consider moving cash or shares into one of these pots.

For couples, coordinating finances can multiply your tax savings. The Marriage Allowance lets a non-taxpayer transfer £1,260 of their unused personal allowance to a basic-rate taxpayer spouse or civil partner, potentially saving up to £252 in tax per year.

In couples where one was born before April 6, 1935, the Married Couple's Allowance is even more generous, reducing the tax bill by between £436 and £1,127 annually.

You can claim this through a Self-Assessment or contact HMRC directly, just check the GOV.UK website to see if you qualify. For more help with tax affairs, Age UK offers free legal and financial advice on 0800 678 1602.

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The other threat to pensions isn't the taxman, but criminals. In 2024, UK savers lost at least £17.5million to pension scams, with Action Fraud reporting a staggering 519 cases.

An average of £48,000 was lost per day. Common tactics include cold calling, "free pension review" offers, time-limited "investment opportunities", and fraudsters impersonating savers to hijack pension accounts.

Experts recommend being vigilant about unsolicited contact regarding your pension. Cold calls are generally illegal for pensions and should be seen as a clear red flag.

If approached, resist any high-pressure tactics and never rush to move or invest funds before consulting a regulated FCA-authorised adviser.

A genuine provider will never pressure you into handing over your money instantly. Security measures can also help. Review your pension account regularly, choose a strong and unique password (three random words is a good rule of thumb), and always enable two-step verification.

If you receive a suspicious message or suspect you've been targeted by a scammer, contact Action Fraud at 08001232040 as soon as possible for advice.