A recent study suggests that if the freeze on tax thresholds continues until 2030, around ten million pensioners could be required to pay income tax by the end of the decade. Currently, individuals can earn up to £12,570 annually before income tax kicks in, a level that has remained unchanged since the 2021/22 tax year. There are indications that the freeze on tax thresholds may be extended until 2030, potentially affecting an additional half a million state pensioners.
Experts warn that at least 9.3 million pensioners could be liable for income tax, representing about three-quarters of all pensioners, compared to the current figure of around 8.7 million. If inflation or wage growth accelerates in the coming years, the number of pensioners paying income tax could escalate to ten million by the end of the decade.
Under the triple lock system, the state pension is adjusted annually based on the highest of earnings growth, inflation, or a minimum of 2.5%. The full new state pension is projected to rise from £230.25 to £241.30 weekly in April 2026, reflecting a 4.8% increase in wages. This increase will push the state pension above the tax threshold, with figures indicating that by 2027/28, the state pension will exceed the tax threshold by 102%.
Pension consultant Steve Webb from LCP emphasized that the combination of frozen tax thresholds and high inflation has led to a significant rise in the number of pensioners subject to income tax. If the freeze on thresholds is extended, an additional half a million pensioners could be impacted, bringing the total to around 9.3 million, with a potential to reach 10 million by the decade’s end. Despite this, most affected pensioners will likely not have to file tax returns, as any tax owed will typically be collected through their private pensions or the ‘simple assessment’ process managed by HMRC.