At November's Autumn Budget, Chancellor Rachel Reeves confirmed the Personal Allowance would stay frozen at £12,570 until April 2031.

As reported by the Daily Record, recent forecasts published by the Office for Budget Responsibility (OBR) show 600,000 additional pensioners beyond previous estimates will be required to pay income tax in 2026/27, climbing to one million by 2030/31.

While the State Pension is a contributory benefit subject to income tax, currently, pensioners relying solely on the State Pension avoid paying any tax. Older people in retirement with supplementary income pushing them above the threshold typically have tax deductions processed through PAYE or Self Assessment.

Nevertheless, pension specialists are encouraging older people to carefully consider how they withdraw income from pensions and savings to prevent paying unnecessary tax.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said many retirees could face larger tax bills unless they carefully manage how they draw money from their pensions, savings and investments.

She outlined five ways pensioners could make their retirement income more tax-efficient.

People start paying income tax once their income exceeds the £12,570 Personal Allowance. Income above this level up to £27,491 is taxed at 20 per cent in Scotland, or up to £50,270 in England and Wales. A guide to the full taxable income rates can be found on GOV.UK.

Savings income may also be taxed depending on your tax band. Basic rate taxpayers can earn up to £1,000 in interest each year tax-free, while higher rate taxpayers can earn £500 before tax applies.

Having a clear plan for how much income you need in retirement can help you avoid accidentally crossing into a higher tax band.

For example, withdrawing a large lump sum from a pension could push someone into paying a higher rate of tax in that year, even if they do not need all the money immediately.

Most pensions allow people to withdraw up to 25 per cent of their private or workplace pension pot tax-free. While many retirees take this money in one go, Ms Morrissey said it can sometimes make more sense to take it gradually through phased drawdown.

This allows pensioners to take tax-free cash in stages while leaving the rest of their pension invested.

Savings held in an ISA can provide tax-free income in retirement. Withdrawals from a cash ISA or stocks and shares ISA are not subject to income tax, capital gains tax or dividend tax, making them a useful way to supplement pension income without increasing a tax bill.

Some investors also move investments held outside tax-efficient accounts into ISAs or pensions to reduce future tax, although this can trigger a capital gains tax charge depending on the amount involved.

Couples may also be able to reduce their overall tax bill by making use of both partners’ allowances. Spouses and civil partners can transfer assets between each other on a “no gain, no loss” basis, helping them make the most of personal allowances and capital gains tax allowances.

However, these rules only apply to couples who are married or in a civil partnership and living together. Ms Morrissey said understanding how income is taxed in retirement can help people keep more of their money.

She said: “Frozen tax thresholds continue to pull more people into paying more tax, with receipts from income tax and capital gains tax continuing to rise.

“There are several things people can do to manage their tax bill and make their retirement income more efficient.”