HM Revenue and Customs (HMRC) has adjusted the tax brackets, affecting one million state pensioners. Under the guidance of Labour Party Chancellor Rachel Reeves, this change has resulted in more than 300,000 additional pensioners facing higher tax rates.
According to recent HMRC data, the number of individuals paying the additional income tax rate rose sharply, reaching 893,000 by the end of 2024. This includes 324,000 people who have now entered the highest income tax band.
This represents a significant 56.8% increase in additional rate taxpayers between the 2022/23 and 2023/24 tax years, accompanied by a 23.9% rise in tax liabilities among top earners — nearly £20 billion more than the previous year.
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The pensioner taxpayer population has also grown notably, increasing by 1.02 million (14.4%) since the last tax year, largely due to the continuation of the triple lock policy, which ensures pension income rises steadily.
State pensioners now make up 22.2% of all taxpayers and account for 16.2% of total income tax revenue. Nearly 8.2 million state pensioners are paying tax, with 7.8 million deriving their main income from pensions.
Rachael Griffin, tax and financial planning expert at Quilter, explains: “While demographic shifts contribute to this rise, the combination of increased retirement incomes and frozen personal allowances is driving many pensioners into higher tax brackets.”
She adds, “The triple lock has been critical in safeguarding pensioner incomes during inflationary times, yet its interaction with static allowances has led to unintended taxation consequences. Essentially, pension increases intended to maintain living standards are being partly offset by higher taxes, especially for those with private pension earnings.”
Griffin further highlights the impact on savings: “Taxable savings interest surged over threefold as interest rates rose, catching many savers unprepared. Although rates have softened, this period underscores the importance of using tax-efficient accounts like ISAs.”
“For long-term investors, this situation may prompt a reassessment of dependence on cash-based returns, which may have already peaked,” she concludes.