UK Pensioner Income Tax Payments Rise to £29.8 Billion

HM Revenue and Customs data reveals that income tax payments from pensioners rose to £29.8 billion in 2024/25, a 41% increase from £21.1 billion in 2022/23. The number of retirees paying income tax grew from 7.1 million to 8.8 million during this period and is projected to reach 9.6 million by 2026/27. This trend is driven largely by fiscal drag, as frozen tax thresholds push more retirees into paying tax or entering higher tax brackets.

Steve Webb, a partner at LCP and former pensions minister, noted that while the government might be tempted to slash tax relief to reduce costs, such moves would be politically difficult and technically complex to implement mid-Parliament. The cost of pension tax relief has already climbed 26%, increasing from £47.8 billion to £60.4 billion.

Separately, taxable flexible pension withdrawals reached a record £22.4 billion for the 2025/26 period, up from £18.6 billion the previous year. In the first quarter of 2026 alone, 770,000 individuals withdrew £5.9 billion. Industry experts suggest this 18% annual quarterly increase indicates that financial pressures are encouraging savers to access their funds earlier. Total taxable flexible withdrawals have exceeded £124.7 billion since the introduction of pension freedoms in 2015.