An estimated 420,000 additional pensioners will pay income tax in the current financial year, as rising state pensions combined with a frozen personal allowance continue to draw retirees into the tax system. HM Revenue & Customs (HMRC) now expects 8.7 million pensioners to be liable for income tax — a significant increase driven by what experts describe as “fiscal drag.”
The personal allowance — the threshold below which income is not taxed — has remained frozen at £12,570 since 2021. Meanwhile, under the triple lock, which ensures state pensions rise by the highest of inflation, average earnings or 2.5%, the full new state pension has increased from £9,332 in 2020 to £11,973 this year. As the gap narrows, more pensioners are finding themselves pushed over the tax threshold.
David Brooks, head of policy at consultancy Broadstone, said the effects of fiscal drag were becoming unavoidable. “While the country’s demographic shift naturally increases the number of pensioners liable for income tax, fiscal drag is unequivocally pulling hundreds of thousands more into the income tax bracket each year.”
By 2027, the Office for Budget Responsibility forecasts that the full new state pension will reach £12,885 — exceeding the personal allowance by more than £300. Pensioners receiving the full amount would then owe 20% tax on the surplus, amounting to around £63 a year, even before accounting for other income sources such as private pensions, investments, or rental properties.
The surge in pensioners paying tax is part of a wider trend across income brackets. The number of higher-rate taxpayers is projected to exceed seven million this year — up from 5.1 million in 2022–23 — while those paying the 45% additional rate has more than doubled in three years to 1.23 million. The basic-rate band has also expanded, rising from 28.8 million to 30.8 million.
Neela Chauhan, partner at accountancy firm UHY Hacker Young, cautioned that the growing tax burden, particularly on higher earners, could have longer-term economic consequences. “There are real concerns over the impacts of placing an ever-higher tax burden on high earners. If pushed too far, it could drive talent overseas or deter skilled individuals from coming to the UK.”
The Conservatives have proposed a “triple lock plus” policy to shield pensioners from tax liability, which would raise the personal allowance in line with the triple lock. Labour has dismissed the idea, calling it unworkable, and the Treasury’s current policy remains to freeze income tax thresholds until 2028.
With pressure mounting and older voters disproportionately affected, the government faces growing calls to revisit its strategy or risk political fallout. The Treasury has been contacted for comment.
