HMRC says around one million pensioners are paying income tax at rates of 40 per cent or above.
The total number of people who have reached state pension age and are paying any income tax at all has risen by around two million in four years, from 6.7 million in 2021-22 to 8.8 million in 2025-26, according to the data, obtained following a freedom of information (FOI) request by Sir Steve Webb, a former pensions minister, to HM Revenue and Customs (HMRC).
Over the same period, the number of people at state pension age or older who are paying the tax at 40% or above has doubled – from around 494,000 in 2021-22 to around 1,028,000 this year. The total includes those paying income tax at a higher or an additional rate.
Sir Steve, who is now a partner at pension consultants LCP (Lane Clark & Peacock) said the freeze on income tax thresholds, significant state pension rises and other inflation-linked pensions increases are factors behind the jump in tax-paying pensioners.
He also highlighted how being a higher rate taxpayer can mean more tax to be paid 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, while higher rate taxpayers have a £500 allowance, and for additional rate taxpayers the personal savings allowance is zero.
Sir Steve said that moving up an income tax bracket could also have implications for the amount of capital gains tax some people need to pay.
Looking ahead, Sir Steve said the number of pensioners paying higher rates of tax is poised to increase further as personal allowances and tax thresholds remain frozen.
But he said the rate of increase is likely to be slower than in recent years, as state pension age will be gradually rising from 66 to 67 between 2026 and 2028.
Steve Webb, partner at pension consultants 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.
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“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.”
A Treasury spokesperson said: “We are committed to help our pensioners live their lives with dignity and respect, which is why we have frozen fuel duty and increased the state pension to leave pensioner couples up to £88 better off a month.
“Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this Parliament.”
