The UK's tax authorities, HMRC, have released new figures showing that over 10 million pensioners are now paying income tax. This represents a significant increase in the number of over-65s liable for tax, with three million more people in this age group expected to pay tax since 2021.
The rise in the number of pensioners paying tax is largely due to a combination of factors, including the government's decision to freeze personal tax-free allowances in 2021. This has meant that more people, particularly pensioners, have been brought into the tax net. Additionally, the significant year-on-year rises in the state pension, along with an increase in the size of the pensioner population, have also contributed to the rise in tax-paying pensioners.
According to Steve Webb, a partner at pension consultants LCP and former pensions minister, the number of over-65s paying tax has risen dramatically due to the freeze in personal tax-free allowances and the increasing state pension payments. The new state pension is currently £12,547, just below the basic income rate threshold of £12,570.
The government has proposed a scheme to prevent some pensioners paying tax, but details have yet to be announced. In the Autumn Budget, Chancellor Rachel Reeves suggested a special scheme to prevent such people paying tax, citing the administrative burden. However, no details have emerged, and experts are warning that the government needs to act quickly to provide clarity for pensioners.