Major pension update as retirement savings face 'tax double whammy'

Pensioners have been warned to prepare for two tax raids on their retirement pots within the next 18 months. The state pension is set to increase by 4.7% in April due to the triple lock, making it worth more than the annual tax-free income allowance from 2027 and forcing most pensioners to pay tax.

Money reporter Imogen Tew explained that pensioners face higher taxes on the money they withdraw from their retirement savings and on the money left in the bank. According to her analysis, those with a private pension of less than £1 a week will also face a tax bill on their state pension from April. Pensioners have already withdrawn £18.7 billion from their retirement funds in fear of higher taxes, she wrote in The Times.

Roddy Munro, of advice firm Quilter, added that retirees now face the "difficult trade-off" between paying income tax or risking a larger bill in the long run.

He told the outlet: "The inheritance tax change coming in April 2027 represents one of the most significant shifts in retirement and estate planning in decades. The advantage of passing on wealth through pensions is disappearing.

"At the same time, if you get the full state pension, every pound drawn from a private pension on top of that will be taxed at a minimum of 20%.

"This creates a difficult trade-off between paying income tax now or risking a larger inheritance tax bill later."

This comes after a former Bank of England economist called for the triple lock to be "abandoned".

Neil Record branded the policy a "mess" and said the state pension needed to be radically overhauled as its cost is set to hit £147billion this financial year.

Mr Record said the triple lock guarantee has become untenable financially and morally as retired people benefit more than the tax-paying workers who fund the state pension.

He said the "huge burden" of the triple lock should be replaced with a policy which links earnings to retirement before switching to increases linked to CPI post-retirement.