Nearly ten million pensioners across the UK could find themselves paying income tax by the year 2030 if Chancellor Rachel Reeves decides to prolong the current freeze on tax thresholds, according to fresh research.
The Personal Allowance Freeze Explained
At present, the personal allowance – the amount an individual can earn before paying income tax – is frozen at £12,570. This level has been in place since the 2021/22 financial year. The current Chancellor, Rachel Reeves, has already set this freeze to continue until the 2028/29 tax year. However, speculation is mounting that the upcoming Autumn Budget on November 26 could see this freeze extended for an additional two years, taking it to the end of the decade.
Impact on Pensioner Households
Analysis from pension consultants LCP, led by former pensions minister Steve Webb, indicates that a two-year extension would immediately drag an extra half a million pensioners into the income tax net. This would bring the total number of pensioner taxpayers to approximately 9.3 million.
The situation is projected to worsen significantly. LCP warns that if inflation or wage growth increases in the coming years, the total number of pensioners liable for income tax could surge to a staggering 10 million by 2030. This would mean that a vast majority of the UK's retired population would be affected.
The Triple Lock and a Shrinking Tax Threshold
The issue is exacerbated by the state pension's triple lock mechanism, which guarantees an annual increase based on the highest of earnings growth, inflation, or 2.5%. For instance, in April 2026, the full new state pension is forecast to rise from £230.25 a week to £241.30 a week.
This steady rise, combined with a static tax threshold, creates a fiscal drag. When the freeze began, the state pension was worth about three-quarters of the tax-free allowance. However, LCP projects that by 2027/28, the new state pension will exceed the personal allowance, reaching 102% of the threshold even with a minimal 2.5% triple lock increase.
Steve Webb, partner at LCP, stated: "A combination of high inflation and frozen tax thresholds has led to a surge in the number of pensioners paying tax. If the Chancellor decides to freeze thresholds for another two years, we will see at least half a million more pensioners dragged into the tax net as a minimum."
He did offer one piece of reassurance for those concerned about administrative burdens, adding: "The one bit of good news is that most of these pensioners will not need to fill in a tax return. Any tax due will usually be collected via a tax code on their private pensions."
