More than a million retired individuals across the UK are set to receive unexpected tax demands on their cash savings next year, according to stark new data from HMRC.
The Scale of the Pensioner Tax Hike
Official statistics reveal that over one million pensioners will be liable for tax on their savings income during the 2025-26 tax year. This represents a dramatic surge, with the number having skyrocketed from fewer than 500,000 just three years earlier in the 2022-23 tax year.
The situation means that retired people now constitute almost half of the 2.6 million individuals nationwide who will owe tax on their savings interest. The primary drivers behind this increase are identified as persistently high interest rates and the effect of fiscal drag, where tax thresholds remain static while incomes and savings grow.
Breaking Down the Tax Brackets
The data provides a detailed breakdown of how this tax burden will fall on different groups of pensioners. The majority, 731,000 individuals, are basic rate taxpayers, representing two-thirds of all basic rate taxpayers who will be hit with savings tax demands.
Most alarmingly, the number of pensioners facing the top rate of tax has more than doubled. Over 80,000 retirees will be required to pay the additional 45% rate on interest earned from accounts held outside of tax-free ISAs. This is a significant jump from the 33,000 pensioners in this highest bracket recorded three years prior.
Frozen Allowances and Political Responsibility
This looming financial pressure on retirees stems directly from the freeze on tax allowances. The policy was initiated under former Conservative Chancellor Jeremy Hunt and is being continued by the current Labour Chancellor, Rachel Reeves, who has committed to keeping thresholds at their current rate until at least 2028.
Anna Bowes, a savings expert at The Private Office, explained the predicament: “The people who are the wealthiest and have probably got the most in cash savings – one because they’ve been saving their whole lives and two because they’ve reduced the risk of their portfolios so they have more in cash – then the freeze in the personal savings allowance will mean they are being dragged into paying more tax than ever.”
In response to the findings, a Treasury spokesman stated: “We are committed to helping our pensioners live with dignity and respect. Thanks to our commitment to the triple lock, millions will see their pension rise by up to £1,900 this parliament.”
