The number of people of state pension age or over who are paying income tax has soared, increasing by 660,000 to 8.51 million in the last year, according to new HM Revenue and Customs figures.
According to HMRC’s annual update of the number of pensioners paying income tax, since the pension age was raised to 66 in 2020/2021, the number of taxpaying pensioners has increased by over two million, from 6.47 million to 8.51 million.
Additionally, the number of taxpayers aged 65 and up has nearly doubled, to 8.95 million in 2024/25, up from 4.9 million in 2010/11.
The increase is due to frozen tax thresholds and substantial state pension increases, which represent a nearly 10 per cent increase over the previous year alone.
According to LCP’s most recent estimate, around 2.5 million pensioners receive state pensions that exceed their personal tax allowance. The majority of these are pensioners receiving the ‘old’ state pension system, which combines a basic income with a substantial SERPS earnings-related benefit.
LCP partner Steve Webb says: “These new figures from HMRC are very timely and help to inform the debate about pensioners and tax. They show that a combination of frozen tax thresholds and significant increases in the state pension means the number of pensioners paying tax has continued to soar. But this is a continuation of a long-term trend which has seen the number of over 65s paying tax rise by around 4 million since 2010/11. For a pensioner in Britain, being an income taxpayer is now the norm rather than the exception”.
Broadstone 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 and pace of increases to the state pension. But it is a reminder that with the income tax thresholds frozen at £12,500 until 2028 since 2021, an ever-growing proportion of pensioners will be captured by the tax given the increases to the state pension.
“For most people the state pension will be below the personal allowance, and it is only extra private savings that exceed this limit. It is wholly appropriate that pensioners on higher incomes are subject to higher levels are tax – it is confusing why pensioners paying tax is necessarily seen as a bad thing.”