Pension disaster as MILLIONS of over 65s 'pulled into' paying more tax in HMRC's stealth raid on savings

New analysis from Paragon Bank is highlighting the impact that tax on savings interest is having on those approaching retirement

Britons aged over 65 are losing more of their hard-earned retirement income to a stealth tax raid from HM Revenue and Customs (HMRC), new research has found.

According to fresh analysis from Paragon Bank, the number of people aged 65 and above expected to face income tax on their savings interest has surged more than fourfold in just four years.

HMRC data obtained through a Freedom of Information request reveals that 2.1 million retirement-age savers are forecast to owe tax on their savings income during the 2026/27 tax year.

That figure stood at just 517,000 in 2022/23, underscoring the dramatic pace at which older savers have been drawn into the tax system as interest rates have remained elevated.

The collective tax bill facing these older savers is projected to hit £3.34 billion in 2026/27, a stark increase from the £795million recorded four years earlier.

Retirement-age individuals now represent a growing proportion of all those paying income tax on savings interest.

The data paints a clear picture of an expanding tax burden falling on people whose savings frequently serve as a crucial source of income in later life.

A change to ISA rules from the 2027/28 tax year offers a potential lifeline for those caught in this widening tax net.

Savers who are 65 or older will keep access to the full £20,000 cash ISA allowance, providing a significant opportunity to shelter interest from taxation.

By contrast, those aged 64 and under will see their cash ISA limit reduced to £12,000.

Analysts note that this distinction gives retirement-age savers a meaningful advantage in protecting their returns.

This comes at a particular time when millions more are finding themselves liable for tax on the interest their deposits generate.

Andrew Wright, the head of Savings at Paragon Bank, said: "Millions of older savers are being pulled into the tax net, putting more of their retirement savings at risk, with four times as many savers aged 65 plus incurring a tax bill on their interest than just four years ago."

He stressed the importance of regularly reviewing where money is held, particularly given the role savings play in providing financial security during retirement.

Mr Wright added: "Making full use of your ISA allowance can help protect more of your hard-earned interest from tax and those aged 65+ have the benefit of retaining the full £20,000 cash ISA allowance from next tax year."