More than one million pensioners are now paying income tax at higher or additional rates – a record number – as older Britons are hammered by a “triple whammy” of tax rises.
New data from HM Revenue & Customs (HMRC) reveals that the number of over-66s paying 40% or more in tax has soared from under half a million to more than one million in just four years – driven by frozen tax thresholds and rising retirement incomes.
The freeze on tax thresholds was first introduced by the Conservative government in 2021 and extended through to 2028 before the last General Election.
Former pensions minister Steve Webb, now a partner at pensions consultancy LCP, said: “There has been a significant increase in the number of pensioners paying income tax at all rates, but the rise has been greatest in the numbers paying income tax at the higher rates.
“This has more than doubled from under half a million four years ago to over a million now. Not only does this mean more tax on things like income from state and company pensions, it also means these pensioners are paying more tax on their savings, as their personal savings allowance is cut, and a higher rate of capital gains tax – a ‘triple whammy’.
“The higher rate threshold has become a real cliff-edge over which growing numbers of pensioners are falling.”
Income tax thresholds have been frozen since 2022 and will remain so until 2028 under current government plans – despite inflation and bumper increases in pensions pushing more older people into higher tax brackets.
Those crossing the £50,270 higher-rate threshold face a cascade of consequences: not just more income tax, but a halving of the tax-free savings interest allowance from £1,000 to £500, and a jump in capital gains tax from 18% to 24%.
The figures, obtained via a Freedom of Information request by Sir Steve Webb, show the number of pensioners paying the higher rate doubled from 455,000 in 2021–22 to 904,000 in 2025–26. Those paying the additional rate of 45% tripled from 39,000 to 124,000 after the threshold was slashed from £150,000 to £125,140 in April 2023.
Meanwhile, the total number of over-66s paying any income tax has ballooned by two million, from 6.7 million to 8.8 million in the same four-year period.
The so-called “triple lock” – which guarantees that the state pension rises each year by the highest of wage growth, inflation or 2.5% – is partly to blame. This April, the full new state pension rose to £11,973 a year. But with add-ons and deferrals, around 3.3 million people now receive more than the £12,570 tax-free personal allowance.
Charlene Young, senior pensions and savings expert at AJ Bell, said: “The nation has fallen victim to the effects of fiscal drag in recent years. Frozen allowances and tax thresholds have pulled more people into the tax system for the first time and hiked the rates of tax people pay as their income rises and they breach a new tax band.
“The government is in a straitjacket thanks to its own fiscal rules, and these figures will bolster the arguments of those calling for state pension reform. The full ‘new’ state pension is close to breaching the tax-free personal allowance, and many pensioners already receive well above this thanks to the way benefits could be built up under the old system.
“The Labour Party has repeatedly pledged to protect the triple lock guarantee and has paused further hikes to the state pension age beyond those due to start in 2026.
“But with pensioner spending predicted to top 50% of the welfare bill by the end of the decade, and the rise in state pension age from 66 to 67 set to save £10bn in borrowing, can it really continue to ignore calls for further reform?”
The Chancellor, Rachel Reeves, has said the freeze on tax thresholds will be lifted in 2028.
