A growing number of UK pensioners are expected to pay income tax as frozen thresholds combined with rising state pensions push more retirees into the tax net. Official data from HM Revenue & Customs (HMRC) indicate that nearly 9.6 million people over state pension age will pay income tax in the current tax year, a figure projected to exceed 10 million by next year.

The increase largely stems from the decision to freeze the income tax personal allowance, currently set at £12,570 since 2021, a measure maintained until 2031. Meanwhile, the state pension has continued to rise annually under the government's "triple lock" policy, which guarantees increases based on inflation, wage growth, or 2.5%, whichever is highest. As a result, the full new state pension is set to surpass the personal allowance from April 2027, meaning many pensioners could face tax bills solely on their state pension income.

HMRC data reflect a sharp rise in the number of pensioners paying tax, with nearly three million more since the allowance freeze began five years ago. In the 2022-23 tax year, about 7.1 million pensioners were taxpayers; this increased to 8.16 million in 2023-24, and is expected to reach 9.58 million in 2026-27. Analysts from pensions consultancy LCP note that over 70% of pensioners now pay income tax, an unprecedented shift.

This phenomenon is part of a broader increase in "fiscal drag," where frozen thresholds mean that income rises push individuals into higher tax brackets without any change in tax rates. Currently, almost a quarter of taxpayers pay higher or additional rates of income tax, up from 17.5% a decade ago. In London, about one-third of taxpayers pay these top rates. The threshold for the higher rate, fixed at £50,270 since 2021, has also increased the number of taxpayers subject to the 40% rate, from 12.6% in 2021 to nearly 19% this year.

The government's policy to prevent state pensioners with no other income paying tax was announced last year but lacks clear implementation details. Some experts suggest this could create a two-tier system where pensioners with solely state pension income are exempt, but those with any additional private pension income would remain liable for tax. Critics argue such a system could treat pensioners differently among themselves and compared with working individuals on similar incomes.

Former pensions minister Steve Webb, now a partner at LCP, has called for a comprehensive review of pension and tax policy, emphasizing the need for fairness and equal treatment between pensioners and workers. Meanwhile, with state pension age rising to 67 by 2028 and projected to reach 68 between 2044 and 2046, more individuals will need to work longer to qualify for the state pension.

HM Treasury has yet to comment on these developments. The issue remains a significant fiscal challenge as the UK’s aging population increasingly contributes to tax revenues amid unchanged income tax thresholds.