A leading union is slamming an unfair HM Revenue and Customs (HMRC) charge as millions of UK pensioners are being swept into the income tax system.
Thanks to the phenomenon known as "fiscal drag," the personal tax allowance has sat frozen at £12,570 since 2021, yet pensions and wages have climbed in line with inflation over the same period.
The personal allowance has sat frozen at £12,570 since 2021, yet pensions and wages have climbed in line with inflation over the same period.
This widening gap means growing numbers of retirees now face tax bills for the first time, even though their actual purchasing power has barely improved.
Older Britons are preparing for a looming state pension tax
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The Civil Service Pensioners' Alliance warns that frozen thresholds are having an increasingly severe effect on older people living on fixed incomes.
Institute for Fiscal Studies (IFS) data reveals the scale of this shift. In 2021-22, approximately 6.7 million pensioners were paying income tax.
By 2025-26, that figure has swelled to roughly 8.8 million. Should thresholds remain static, forecasts indicate some 9.3 million pensioners—representing around three quarters of all retirees—could find themselves liable for income tax by 2030.
This would mean older Britons whose sole income comes from the state pension will become taxpayers for the first time on their payments alone.
How much more will you pay by 2031 due to fiscal drag? | STANDARD LIFELATEST DEVELOPMENTS
How many people will be pulled into higher tax brackets? | RATHBONDES / HMRC In response to the continuation of fiscal drag as a policy, the CSPA has condemned the situation as fundamentally unjust.
The organisation stated: "Pensioners on modest fixed incomes should not be penalised through frozen tax thresholds while everyday costs continue to rise."
Analysts calculate that had the personal allowance kept pace with inflation since 2021, it would currently stand between £15,000 and £17,000 rather than its present level.
Additional CSPA priorities include maintaining the 25 per cent tax-free pension lump sum and protecting ISAs alongside other tax-free savings vehicles.
Income tax threshold freeze impact | PA Becky O'Connor, the director of Public Affairs at PensionBee, described the threshold freeze as a stealth tax hitting workers when household finances are already stretched thin.
She said: "As wage growth pushes more people into higher tax bands, fiscal drag increases the tax burden without any boost to take-home pay, breaching the Government's own promises and leaving families worse off."
Ms O'Connor warned that this concealed pressure damages people's capacity to save and prepare for retirement.
The retirement expert added: "When everyday costs rise faster than earnings, pensions are often the first thing to be sacrificed, weakening long-term financial resilience and storing up problems for future retirees."