More than one million retirees paid income tax at 40 per cent or more this year, double the number in 2021-22, according to official data obtained by pension consultants LCP. The figures show 977,000 state pensioners now face the 40 per cent rate, while 115,000 pay the 45 per cent rate — a trebling of those hit by the top rate.
Sharp Rise in Higher-Rate Taxpayers
The number of taxpayers of Department for Work and Pensions (DWP) state pension age or older paying at least 40 per cent has doubled in five years. In 2021-22, around half a million retirees were in this bracket; that figure now exceeds one million. The data also reveals that 9.6 million state pensioners are paying income tax in total.
Sir Steve Webb, a former Liberal Democrats and Conservative Party coalition government pensions minister and now of consultancy LCP, said: “Many people of working age may have expected that they would be basic-rate taxpayers in retirement, but few will have expected to find themselves paying 40pc or more.”
Impact on Retirement Planning
Sir Steve added: “Those who are planning their retirement finances will increasingly need to allow for the fact that a significant chunk of the income they had planned to live on will be taxed at 40pc or more, and for some that means more pension saving will be needed today to compensate.”
The rise in higher-rate taxation among pensioners is attributed to frozen tax thresholds and the earnings-related state pension, which has pushed more retirees into higher bands as incomes have grown.
Political Reaction and Treasury Response
Sir Mel Stride, the Tories shadow chancellor before his replacement by Kemi Badenoch in this week's reshuffle, said pensioners were on the hook for Labour's “profligate spending”. He said: “Labour want as many people as possible paying as much tax as possible in order to fund their profligate spending. We know that working people and businesses have been left to pick up the tab for Labour’s refusal to cut the welfare bill, but now it is clear that pensioners are on the hook too.”
A Treasury spokesman said: “Pensioners whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament. By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year and they continue to benefit from one of the most generous personal allowances in the G7.”
The figures underscore the growing tax burden on retirees, with the number of pensioners paying higher-rate tax expected to continue rising as thresholds remain frozen and state pensions grow. For those planning retirement finances, the need to factor in higher tax rates on pension income has become increasingly pressing.
