ROUGHLY one million pensioners are being hit with high retirement tax bills thanks to thresholds being frozen.
Over the last four years, an extra two million people have started paying income tax after reaching state pension age.
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The number of people paying it at the higher rate has also doubled, according to government data.
Former pensions minister Steve Webb, who got the information through a Freedom of Information (FOI) request, said it means pensioners are facing a “triple whammy” of hits to their savings.
Pensions are usually counted as part of your earnings so you will pay tax on any income above your tax-free allowances.
Income tax bands had previously increased with inflation but they’ve been frozen since 2022 after successive governments chose to freeze them to raise revenue.
That means that as people’s salaries – or their pension payments – rise, they can be tipped into a higher tax band.
The measure is set to stay in place until 2028 after Chancellor Rachel Reeves confirmed in the Budget that the freeze would continue.
Government figures show 6.7million people were paying income tax after reaching state pension age in 2021-22.
That’s now risen to 8.8million in 2025-26.
Meanwhile the number of people paying the highest rate of 40% has risen from around 494,000 in 2021-22 to around 1,028,000 this year.
Sir Steve, who is now a partner at pension consultants LCP, said this is because of the freeze on income tax thresholds, as well as significant state pension rises and other inflation-linked pensions increases.
In April the state pension was increased by around £470 a year.
If the thresholds had risen in line with inflation, most pensioners would have only lost 20% of this increase (or £94) in income tax.
But because of the freeze, more will have fallen into the 40% tax bracket and therefore had double the amount (£188) clawed back by the taxman.
As tax thresholds have remained frozen, a typical pensioner earning £327 a week (before housing costs), which amounts to an annual income of £19,189, is expected to pay £9,261 in income tax by 2028.
If income tax thresholds had risen in line with inflation since 2021, this amount would have been lower at £6,242.
Income tax thresholds
Here we explain which tax band you fall into, depending on your earnings…
Personal allowance – Up to £12,570
You’ll be able to earn this amount without paying any tax.
Basic rate – £12,571 to £50,270
You’ll be taxed 20% on earnings above £12,570.
Higher rate – £50,271 to £125,140
You’ll be taxed 20% on earnings between £12,571 to £50,270, and 40% on earnings between £50,271 and £125,140.
Additional rate – Over £125,140
You’ll be taxed 45% on earnings above £125,140.
Sir Steve said pensioners dragged into the higher tax bracket will also have to pay more tax on other forms of income.
For example, basic rate taxpayers can receive up to £1,000 of interest on savings and not have to pay tax on it under the annual personal savings allowance.
But higher rate taxpayers have a lower £500 allowance and additional rate taxpayers receive no personal savings allowance.
Plus, moving up an income tax bracket could have implications for the amount of capital gains tax some people need to pay.
Sir Steve warned the number of pensioners paying higher rates of tax is set to increase further in the coming years.
“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,” he said.
“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.”
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 – but it’s due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
