More than one million retired individuals across the UK are set to receive an unwelcome letter from HM Revenue and Customs (HMRC) concerning tax on their savings income.
The Scale of the Issue
Startling new figures obtained via a Freedom of Information request by investment platform AJ Bell reveal the extent of the problem. Approximately 1,160,000 people are expected to pay tax on income earned from their savings in the 2025/26 financial year.
Critically, state pensioners receiving payments from the Department for Work and Pensions (DWP) account for nearly half of all taxpayers facing this levy. They represent a huge portion of the 2,640,000 taxpayers nationwide due to pay income tax on cash savings interest this year.
Why Are Pensioners Being Affected?
This significant increase is driven by two key factors: soaring interest rates and frozen tax thresholds. While savings rates have risen, the point at which people start paying tax on their savings has remained static, dragging more people into the tax net.
The data shows a dramatic surge in recent years. The number of pensioners facing a tax bill on their savings has more than doubled since the 2022-23 tax year. It has jumped from 493,000 in 2022-23, to 953,000 in 2023-24, and 1,090,000 in 2024-25.
Higher Rate Taxpayers Hit Hardest
The situation is particularly severe for those pushed into higher tax bands. The analysis shows that more than 80,000 pensioners will now pay a 45% tax rate on interest earned from savings held outside of tax-free accounts like Cash ISAs.
This marks a sharp increase from just 33,000 pensioners three years ago, highlighting how frozen thresholds are pulling more retirees into the higher-rate tax bracket.
Charlene Young, a pensions and savings expert at AJ Bell, commented on the trend. "In retirement it is common to hold a little more cash," she said. "People often want to de-risk some of their investments... Unfortunately, that appears to be leading to a large number of pensioners suffering a tax bill on their cash savings with increasing numbers being dragged into higher tax bands too."
This combination of factors has created a perfect storm, resulting in a steep rise in the total number of taxpayers incurring tax on their savings, with state pensioners bearing a disproportionate share of the burden.
