State pension 'shock' as ONE MILLION retirees 'dragged into tax system' under HMRC rule

Patrick O'Donnell
Sat, 02 May 2026 10:05:06 +0000

One million state pensioners have been forced to pay tax on their payments alone thanks to a stealth tax raid administered by HM Revenue and Customs (HMRC).

Fresh data from the authority reveals a dramatic surge in the number of retired individuals facing income tax bills, with more than one million additional pensioners entering the tax system during the 2023-24 financial year.

The figures show 8.16 million people aged over 66 are now paying tax on their retirement income, a substantial increase from 7.14 million the previous year.

Pensioners now account for at least 22 per cent of all taxpayers in the country. The sharp rise reflects the combined effect of increasing state pension payments and the government's decision to hold income tax thresholds at current levels.

The mechanism behind this shift lies in the prolonged freeze on tax thresholds, which have remained static since 2021 and will stay unchanged until 2031.

Meanwhile, state pension payments have continued to climb, creating a narrowing gap between retirement income and the point at which tax becomes payable.

A full new state pension currently stands at £12,548 annually, leaving recipients just £22 short of the £12,570 personal allowance.

This razor-thin margin means even modest supplementary income from a small private pension, widow's benefit or occupational scheme immediately pushes pensioners into the 20 per cent basic rate tax bracket.

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Dennis Reed, a campaigner for the pensioner activist group Silver Voices described the situation as unsurprising but deeply concerning.

He said: "These figures are no surprise. Each year the frozen lower income tax band means that more and more older people are being dragged into the tax system.

"By the end of this parliament the vast majority of retired people in this country will be paying tax – this is a shocking situation.

"Just £20 to £30 extra a month can push you into being taxed and when people are struggling anyway with the cost of living the last thing they need is to be taxed too."

Chancellor Rachel Reeves pledged in November that pensioners relying solely on the state pension would not face tax on those payments, though the practical implementation of this commitment remains unclear.

HMRC noted that a revised methodology accounted for 196,000 of the additional pensioner taxpayers, with demographic shifts and rising retirement incomes also contributing to the increase.

Rachael Griffin, a tax and financial planning expert at wealth manager Quilter, warned the trend would only accelerate.

She said: "These figures show how frozen tax thresholds are completely reshaping the tax profile of the country. Given that we are not expecting to see any changes to thresholds until 2031, these dynamics look set to intensify rather than unwind."