More than 300,000 British state pensioners have been issued with tax demands of at least £1,000, with the oldest retirees facing the heaviest financial burden, new analysis reveals.
Sharp Rise in 'Retirement Tax' Demands
Official data analysed by The Telegraph shows that the number of pensioners facing four-figure tax bills on their state pension has surged dramatically. The total rose by 71,000 in just one year, from 249,000 to 320,000. This so-called 'retirement tax' is hitting a significant portion of the retired population, with around one in four retirees – some 3.2 million people – now receiving a state pension that exceeds the frozen personal allowance.
The issue is particularly acute for the very oldest citizens. The data indicates that state pensioners over the age of 80 were five times more likely to receive a bill of £1,000 or more compared to younger retirees. Furthermore, the tax burden is intensifying at the highest levels. In the last financial year, 15,800 retirees paid at least £2,000 in tax on their state pension income alone, a staggering increase of 48% from 10,700 the previous year.
Why Are Pensioners Being Taxed?
The primary driver of this trend is the government's long-term freeze on income tax thresholds, combined with consistent increases to the state pension via the 'triple lock'. Many pensioners have seen their incomes rise above the £12,570 personal allowance due to earnings-related top-ups from the old State Earnings-Related Pension Scheme (Serps), which was part of the pre-2016 state pension system.
Tom Selby, director of public policy at wealth manager AJ Bell, stated: "Pensioners being taxed on at least a portion of their state pension income is an inevitable consequence of the freezing of tax thresholds and will only get worse in the coming years. The only sensible route out of this mess is to unfreeze those thresholds, but that is unlikely to happen until the next decade at the earliest."
A Growing Disconnect for Retirees
Financial experts warn that pensioners are being pulled into the tax net without a corresponding improvement in their standard of living, as inflation erodes the value of static allowances.
Adam Cole, head of wealth planning at Quilter, commented: "With the personal allowance stuck in place while the state pension continues to rise, more retirees are being pulled into tax without any meaningful improvement in their living standards. For many pensioners, there is a growing disconnect between policy intent and lived experience. Income is rising largely because of government uprating decisions, yet tax allowances have failed to keep pace with inflation."
He concluded that the result is a situation where pensioners are increasingly taxed on income designed to provide basic security, rather than fund discretionary spending. With thresholds set to remain frozen until at least 2028, the number of retirees facing significant tax bills on their state pension is expected to continue its steep climb.
