Tackle the pensions stealth tax

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 the norm. To help with future tax planning, here's what to expect from April 2026.

- by Katie Elliott

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.

Based on the triple lock, which ensures that 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.