More than 600,000 high earners are set to be caught by the pension tapered annual allowance unless Prime Minister Andy Burnham acts to change the rules, according to new analysis. HM Revenue and Customs (HMRC) data shows that around half a million people are already affected in the current tax year ending April, with a further 114,000 likely to be pulled in within the next five years if thresholds remain unchanged.
Pressure mounts on Burnham
The research, carried out by pension consultancy Barnett Waddingham for the Financial Times, found that a combination of frozen thresholds and rising incomes means the total number of higher earners affected by the taper will exceed 600,000. Andy Burnham, who became Labour Party Prime Minister, is being urged to intervene to prevent more taxpayers from being caught out.
How the pension taper works
The annual allowance is the maximum amount that can be saved into a pension before tax is due. For the 2026/27 tax year, the standard annual allowance is set at £60,000. However, this reduces to an amount between £10,000 and £60,000 for individuals earning over £200,000. This is known as the tapered annual allowance.
The reduction works on a sliding scale: the £60,000 allowance decreases by £1 for every £2 of adjusted income above £260,000. Adjusted income includes not just salary but also other taxable income plus pension contributions made by the employer.
Experts warn of stealth tax
Tyron Potts, head of pensions research at Barnett Waddingham, said the taper can quietly undermine pension savings for high earners. He stated: "For high earners, annual allowance tapering can swiftly and stealthily erode pension tax relief, so understanding your adjusted income and how the taper applies will be essential to avoiding an unexpected tax bill."
Mr Potts added: "Those affected risk seeing the tax advantages of pensions eroded both on the way in and on the way out, potentially leaving less overall for their families and loved ones."
Mixed views on impact
Sir Steve Webb, former pensions minister and partner at consultancy LCP, offered a contrasting perspective. He said: "A combination of a much higher starting allowance and a more gentle taper mean that the impact is marginal for most people."
He also noted that the frozen threshold "is likely to be much less of an issue than it used to be", suggesting that the Treasury may not feel immediate pressure to change the rules.
What happens next
The analysis comes as Mr Burnham faces growing calls from pension experts and campaigners to review the taper regime. With more than 100,000 additional taxpayers expected to enter the taper zone within five years, pressure is building for a change that could protect pension savings for Britain's highest earners.
For now, the Prime Minister has not publicly responded to the findings. However, the data from HMRC underlines the scale of the issue and reinforces the need for clarity around pension tax rules. High earners are being advised to check their adjusted income carefully and seek professional advice to avoid unexpected tax bills.
