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The Sun- How to use cash ISAs to avoid tax on state pension savings?

Journalist: Marc Shoffman, Freelance

ended 29. September 2026

Hi

I am writign a story for The Sun about how the state pension will push many into paying tax from next year.

I am keen for comments on how to use cash ISAs to avoid tax on pension savings? 

Many thanks

Marc

3 responses from the Newspage community

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Although being tax savvy is important, don't let the tax tail wag the retirement dog.

Yes, as the State Pension rises, more retirees could find themselves paying income tax, but pensions remain hugely tax-efficient, with tax relief on contributions and tax-free investment growth.

ISAs provide a valuable alternative, allowing tax-free withdrawals without increasing your taxable income.

Cash ISAs generally suit shorter-term needs, while Stocks and Shares ISAs can offer greater long-term growth potential, albeit with investment risk.

The key is to use pensions and ISAs together, drawing income strategically to minimise unnecessary tax while ensuring your money lasts throughout retirement
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Cash ISAs are likely to become increasingly valuable for pensioners as more are dragged into the tax system and the tax on savings interest increases by 2% next tax year.

At current rates, £20,000 in cash savings could generate £1,000 in interest a year. Inside a cash ISA, that interest is tax-free, and a couple with two ISA allowances could shelter £40,000 between them each tax year.

However, pensioners shouldn't automatically assume they will pay tax on ordinary savings accounts. Basic-rate taxpayers have a £1,000 Personal Savings Allowance, while those with relatively low other income may also benefit from the Starting Rate for Savings, which can provide up to another £5,000 of tax-free interest.

That means someone whose main income is the State Pension could potentially receive several thousand pounds in savings interest before paying tax on it.

Nevertheless, with higher interest rates and higher tax, using ISA allowances is common sense.
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The Personal Allowance freeze and the State Pension triple lock are dragging millions of retirees into income tax, and it's about to get worse. With the new State Pension rising to roughly £13,036 in April 2027, it will breach the £12,570 threshold on its own for the first time. Any private income on top is taxed from the first pound. My Accountant recommends Cash ISAs as an obvious fix: interest earned inside one never touches HMRC, and withdrawals add nothing to your taxable total. So, flip the approach. Let the State Pension do the heavy lifting, then draw top-up income from a Cash ISA rather than a taxable pension pot or savings account. Simple, effective, and the stealth tax trap sidestepped.