Pensioners Face Rising Tax Bills by 2030 Amid Threshold Freeze

LONDON, England – More than 10 million pensioners could be paying income tax by 2030 if the Chancellor proceeds with extending the freeze on tax thresholds, according to new analysis released today. The current thresholds are set to remain frozen until 2028, and experts warn that this could drag an additional half a million pensioners into the tax net.

Steve Webb, a partner at the consultancy LCP and former pensions minister, stated that if inflation or wage growth rises, the projected number of pensioners paying taxes might increase to 10 million by the end of the decade. “The one bit of good news is that most of these pensioners will not need to fill in a tax return,” Webb remarked.

As reported by the Department for Work and Pensions (DWP), there are currently 13.1 million people receiving a state pension. Of those, 8.72 million already pay income tax because their income exceeds the personal allowance of £12,570. This figure is expected to grow, especially as the triple lock adjusts the state pension in line with inflation, wage growth, or 2.5 percent annually – whichever is highest.

Webb pointed out that from April 2026, the full new state pension will be worth £12,548, just below the personal allowance threshold. This means retirees with even modest supplemental incomes could face a tax bill. By 2027, the pension will exceed the threshold, making it a taxable benefit.

Should the freeze continue, even more pensioners receiving the old state pension—designated for those who retired before April 2016—will likely surpass the tax allowance. Taxpayers can earn up to £12,570 tax-free, while income between this amount and £50,270 is taxed at a basic rate of 20 percent. Earnings above £50,270 incur a higher rate of 40 percent. Since 2021, these thresholds have remained unchanged.

The rise in pensioners paying higher-rate tax has doubled since 2021, from 455,000 to nearly 900,000, according to LCP. Approximately 124,000 retirees now pay an additional rate of tax compared to just 39,000 two years prior. Webb added that the tax would usually be collected automatically through a tax code or a simple assessment process via HMRC.

The analysis shows that many pensioners now find themselves in tax brackets they never anticipated due to rising inflation and stagnant tax thresholds. If the Chancellor freezes the thresholds for another two years, the number of taxable pensioners could exceed 9.3 million by 2030. As inflation or wage growth potentially raises state pensions further, it’s plausible the number of taxpayer pensioners could soar to 10 million.