Pension Tax: 10 Million Over 65s Taxed On Pensions For The First Time

Record numbers of pensioners are now being taxed on their pension income, according to new data from HM Revenue and Customs (HMRC).

Some 10 million over-65s are now paying income tax on their pension, up more than 3 million since the tax thresholds were frozen in April 2021/22.

The table below shows the estimated number of pensioners now paying tax on their retirement income:

Source: HMRC

Why has the number of pensioners paying tax risen?

The number of people over the age of 65 paying tax on their pensions has increased due to a combination of factors.

Freezing the tax-free allowance means that more people get pushed into a higher tax bracket because it doesn’t account for inflation, increasing the amount of pension income received.

One of the largest factors contributing to pension income is the State Pension also receives a yearly rise, under the ‘triple lock’ protection, which is the higher of:

• average earnings growth
• inflation
• 2.5%

A rise in the pensioner population also means the number of over 65s has risen dramatically, up by over 3 million since 2021.

Number of pension taxpayers could rise

From April 2027, the standard rate for the New State Pension will exceed the tax-free threshold, currently set at £12,570.

That means pensioners wholly reliant on the New State Pension could become taxpayers, even if they don’t receive income from elsewhere, such as a workplace pension or a self-invested personal pension (SIPP).

Chancellor Rachel Reeves announced that a special scheme would be introduced to prevent those reliant on the State Pension alone from facing tax.

However, no details on how or when the scheme will come into place has been announced yet.

Sir Steve Webb, LCP partner, said: “The surge in older people paying income tax is continuing, with record numbers of taxpaying pensioners in 2026/27. The recent extension of the freeze in personal allowances, combined with the continued generous indexation of the state pension means that even more people in retirement can expect to become taxpayers for the first time in the coming years.”

What can you do?

Preparation is key to understanding how much you’ll have to retire and any taxes you’ll need to pay.

Use a pension calculator to estimate how much pension income you’re likely to have when you retire. Take a look at your workplace pension, personal pension or SIPP, to check what your retirement fund is on track to generate.

It’s also important to check your State Pension forecast to get an idea of how much State Pension income you’re on track to receive.

If you’re still concerned, speaking with a specialist financial or pensions adviser could help you better understand your personal circumstances and tax liabilities.