More than one million pensioners are now paying income tax at 40% or more, after the number hit by higher rates more than doubled in just five years.
New figures obtained through a Freedom of Information request by former pensions minister and LCP partner Steve Webb reveal a dramatic rise in the number of people over State Pension age paying higher-rate tax.
The figures show that 1.092 million pensioners are now paying income tax at 40% or more, up from 494,000 in 2021/22.
That means the number has more than doubled in just five years.
Even more strikingly, the number paying the additional 45% rate has roughly trebled over the same period.
The rise comes as tax thresholds have remained frozen while State Pensions and other pension incomes have increased.
The personal allowance – the amount people can receive before paying income tax – has been frozen at £12,570.
The threshold at which the 40% higher rate starts has also been frozen at £50,270, while the additional-rate threshold was frozen at £150,000 before being cut to £125,140 from 2023/24.
The Government has already announced that the freeze on allowances and thresholds will continue until 2030.
This means more pensioners could find themselves paying higher rates of tax as their incomes rise while the thresholds remain stuck.
Webb warned that the figures could have major implications for people planning how much they need to save for retirement.
He said: “Many people of working age may have expected that they would be basic rate taxpayers in retirement, but few will have expected to find themselves paying 40% or more out of their pensions in tax.
"But this is the norm now for over a million pensioners, with the number set to rise further.
"Those who are planning their retirement finances will increasingly need to allow for the fact that a significant chunk of the income they had planned to live on will be taxed at 40% or more, and for some that means more pension saving will be needed today to compensate”.
The figures highlight the impact of fiscal drag, where tax thresholds remain frozen while incomes rise, gradually pulling more people into higher tax bands.
For pensioners, rising State Pension payments and other pension income can push more people into the tax system – and, for some, into higher-rate bands.
The FOI data covers people over State Pension age. HMRC routinely publishes figures showing the overall number of pensioners paying income tax, as well as the number of taxpayers of all ages paying different rates.
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However, it does not routinely publish the same breakdown of tax rates specifically for pensioners.
The new figures therefore provide a clearer picture of how many retirees are being caught by the higher tax rates.
The figures also include Scottish taxpayers in the higher-rate and additional-rate categories according to HMRC's classifications.
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