- Retirees paying income tax at record high
- Personal allowance freeze impacts pensioners
- More retirees taxed than working-age individuals
According to HMRC’s most recent numbers, more retirees are paying income tax than ever.
The number of people over the state pension age who pay income tax increased by 660,000, from 7.85 million in 2023/24 to 8.51 million in 2024/25.
It implies that approximately 9 million people over 65 are now paying income tax, up from 4.9 million in 2010/11.
The massive increase in retirees paying tax is partly due to a stagnant income tax, with the £12,570 personal allowance frozen since 2021.
While the triple lock ensures that the state pension rises in line with inflation, earnings, or 2.5 per cent, keeping the personal allowance frozen means that a pensioner receiving the full state pension of £11,500 per year plus any private pension income must pay income tax.
According to the Institute of Fiscal Studies, 65% of individuals 65 and older pay income tax, up from 48% in 2010/11.
For the first time, retirees are expected to pay more income tax than individuals aged 16 to 64.
If elected, the Conservatives have promised to implement a ‘triple lock plus’ that will prevent retirees from being taxed on their state pension.
They intend to keep the headline rate, which is presently £11,500 per year, below the personal allowance.
Steve Webb, partner at LCP and pension blogger for This Is Money, said: “These new figures from HMRC are very timely and help to inform the debate about pensioners and tax.”
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‘They indicate that, due to static tax thresholds and considerable increases in the state pension, the number of seniors paying tax has continued to rise.
‘However, this is a continuation of a long-term trend in which the number of over-65s paying tax has increased by around 4 million since 2010/11.
For a pensioner in Britain, being an income taxpayer is now the norm rather than the exception.
According to LCP’s recent research, almost 2.5 million retirees currently receive state pensions that exceed the income tax threshold.
Of these, 2.1 million attained state pension age under the earlier pre-2016 system, and they combined their second state pension, also known as SERPS, to build up a larger pension pool.
In 2023/24, there were 8.4 million pensioners who achieved state pension age before April 6, 2016, under the ‘old’ state pension system, and 3.2 million reached pension age after that date under the ‘new’ state pension.
