More than one million pensioners are now paying income tax at rates of 40 per cent or higher, as frozen thresholds and rising retirement incomes push older Britons over a steep financial cliff edge.
New HMRC figures reveal the number of state pensioners paying higher or additional rate tax has more than doubled in just four years, climbing from 494,000 to over one million.
The sharp rise is being blamed on the freeze to income tax thresholds, combined with record state pension increases and inflation-linked boosts to private pensions.
Sir Steve Webb, now a partner at pension consultants LCP, has highlighted how this tax increase creates a "triple whammy" effect on pensioners' finances.
He said: "Not only does this mean more tax on things like income from state and company pensions, it also means these pensioners are paying more tax on their savings, as their personal savings allowance is cut, and a higher rate of capital gains tax."
Basic rate taxpayers can receive up to £1,000 of interest on savings tax-free under the annual personal savings allowance
GETTYBasic rate taxpayers can receive up to £1,000 of interest on savings tax-free under the annual personal savings allowance. However, this drops to just £500 for higher-rate taxpayers. For additional rate taxpayers, the personal savings allowance disappears completely.
Moving up an income tax bracket also has implications for capital gains tax rates, further increasing the financial burden on affected pensioners.
A Treasury spokesman defended the Government's approach, stating: "We are committed to help our pensioners live their lives with dignity and respect, which is why we have frozen fuel duty and increased the state pension to leave pensioner couples up to £88 better off a month."
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Several factors have contributed to this significant increase in tax-paying pensioners
GETTYThe spokesman added that their "commitment to the triple lock means millions will see their pension rise by up to £1,900 this Parliament."
Despite these assurances, Webb warned that the higher rate threshold has become "a real cliff-edge over which growing numbers of pensioners are falling."
The situation creates a stark contrast between Government claims of supporting pensioners through state pension increases while simultaneously allowing more to be pulled into higher tax brackets through frozen thresholds.
Several factors have contributed to this significant increase in tax-paying pensioners. Webb identified the freeze on income tax thresholds, substantial state pension rises and other inflation-linked pension increases as key drivers behind the jump.
Looking ahead, the number of pensioners paying higher rates of tax is expected to increase
GETTYLooking ahead, the number of pensioners paying higher rates of tax is expected to increase further as personal allowances and tax thresholds remain frozen.
However, Webb noted that the rate of increase is likely to slow compared to recent years. This is because the state pension age will be gradually rising from 66 to 67 between 2026 and 2028.
The overall trend reflects what Webb described as a "significant increase in the number of pensioners paying income tax at all rates," with the rise being "greatest in the numbers paying income tax at the higher rates".
