Up to one million more state pensioners are expected to start paying income tax on their state pension, following a freeze on tax thresholds announced in last year’s Budget. The Office for Budget Responsibility (OBR) forecasts that HM Revenue and Customs (HMRC) has significantly underestimated the number of pensioners who will be impacted by this measure.
Labour Party Chancellor Rachel Reeves’s decision to extend the freeze on Personal Tax Free Allowance and other tax thresholds until 2031 means many pensioners—and workers—will be drawn into paying income tax for the first time. By 2026-27, an additional 600,000 pensioners are projected to face tax charges, rising to one million by 2030-31.
This change is expected to generate approximately £100 million in extra tax revenue from pensioners, averaging about £100 per individual. Conservative Baroness Ros Altmann, a former pensions minister, criticized the policy as “bizarre” and warned of administrative difficulties in its implementation. Former pensions minister Sir Steve Webb added that the government’s underestimation strengthens calls for a comprehensive review of income tax starting points, especially concerning pensioners.
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Currently, state pensions are taxable income, but many pensioners avoid paying tax because the full state pension amount—£230.25 per week in the current financial year—falls below the personal tax allowance threshold of £12,570 annually. However, as thresholds remain frozen and inflation pushes incomes upward, more pensioners will surpass this limit, triggering tax liabilities where none existed before.