Over One Million UK Pensioners Now Pay Higher Income Tax

More than one million pensioners in the United Kingdom now pay income tax at the higher rate of 40% or more, according to data obtained by Steve Webb of LCP. The number of retirees affected has more than doubled since the 2021/22 tax year, with approximately 1.092 million people now in the higher bracket and 115,000 paying the 45% additional rate.

The increase is driven by fiscal drag, a process where the personal allowance of £12,570 and the higher-rate threshold of £50,270 remain frozen while State Pensions continue to rise under the triple lock policy. Chancellor Rachel Reeves extended this freeze on tax thresholds until 2030, a decision the Treasury estimates will generate approximately £12bn in revenue.

While the government maintains that individuals relying solely on the State Pension will not pay income tax, Webb warned that working-age people may need to increase their current savings to compensate for the higher tax burden they will face in retirement.