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Frozen allowances drag almost half a million more pensioners into tax net

by Emma Simon
June 26, 2025
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Fiscal drag means that almost 9m pensioners will pay tax on their retirement income this year, according to the latest data from HMRC.

The combination of freezing the personal allowance threshold, while increasing the state pension means a significantly higher number of pensioners will now fall into the income tax net.

HMRC figures show that 8.7m people of State Pension Age or older are projected to pay income tax in the current tax year. This is an additional 420,000 people when compared to the previous tax year, and an extra 1.85m people when compared to 10 years ago. 

This figure is expected to further increase, with the Chancellor having previously announced that the tax-free personal allowance, of £12,570, will remain frozen until 2028. The state pension for this tax year stands at £11,973, and could surpass the personal allowance next year, depending on the uprate value imposed under the terms of the triple lock. If this happens this would mean all pensioners in receipt of the full state pension would automatically have to pay income tax on this benefit.

Broadstone’s head of policy David Brooks says: “We would expect a growing number of pensioners to be liable for income tax as the country’s demographic changes due to our ageing population.

“Fiscal drag, however, is also bringing hundreds of thousands more pensioners into paying income tax every year as the frozen personal allowance thresholds combines with the triple lock-protected state pension.”

He adds that while this may be “personally frustrating for many pensioners”, it does reflect the fact that inflation-linked occupational pensions and a triple-locked state pension have risen, and helped protect the value of pensions against rising inflation. 

He says: “The government will be called on again to protect pensioners from this impact but with seemingly few ways to control the rise in pensioner incomes, taxation is the only tool left.”

Hargreaves Lansdown head of retirement analysis Helen Morrissey adds: “The pension tax paying population is surging. On the one hand, this can be celebrated as a sign of rising incomes among this population, but it’s also fair to say that frozen tax thresholds have also played a huge part in dragging more pensioners into tax-paying territory. With the freeze set to stay in place until 2028, we expect to see these numbers continue to swell.”

She adds that way people take their pension benefits can help mitigate these tax liabilities, pointing out that income taken from Isas remains free of income tax. 

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