Hundreds of thousands of state pensioners aged over 80 are receiving alarming letters from HM Revenue and Customs (HMRC) warning of increasing tax liabilities—a situation experts say is “inevitable” and poised to worsen. This development primarily affects retirees receiving SERPS (State Earnings-Related Pension Scheme) top-ups alongside their basic state pension.
Recent data reveals that more than 300,000 pensioners now pay at least £1,000 in tax on their state pension income alone. Over the past year, the number of pensioners facing such four-figure “retirement tax” bills has jumped by 71,000, rising from 249,000 to 320,000.
Currently, around 3.2 million retirees—approximately one in four—have state pensions exceeding the personal allowance threshold, making them liable to pay tax. The Telegraph highlights that pensioners aged 80 and above are five times more likely than their younger counterparts to face tax bills of £1,000 or more.
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Moreover, 15,800 retirees paid at least £2,000 in state pension tax during the last financial year, marking a 48% increase from 10,700 the previous year.
Tom Selby, a spokesperson for wealth manager AJ Bell, explains: “Taxation of state pension income is an unavoidable consequence of frozen tax thresholds combined with the ongoing triple lock increases to state pension values. Unfortunately, this trend is expected to continue, placing more pressure on retirees.”
Selby adds that “the only practical solution would be to unfreeze these tax thresholds,” but notes this is unlikely to happen before the next decade at the earliest.
Adam Cole from wealth manager Quilter echoes these concerns, stating: “As the personal allowance remains static while state pension amounts climb, more retirees are pushed into the tax system without a corresponding increase in real income or living standards.”
Cole cautions that this creates a disconnect between government policy intentions and the lived experiences of pensioners: “While pensions rise primarily due to government uprating policies, stagnant tax allowances mean retirees are increasingly taxed on income meant to provide financial security—not discretionary spending.”
As the tax landscape shifts, many pensioners—especially those over 80—are facing a harsher financial reality, with tax liabilities set to grow if current policies remain unchanged.