Number of pensioners paying larger price of earnings tax DOUBLES as warning issued
A new Freedom of Information request by former pensions minister Sir Steve Webb reveals there are now over a million pensioners paying income tax at 40% or more
More pensioners are being hit with income tax(Image: Getty)
The number of state pensioners paying the higher rate of income tax has more than doubled in just five years, new research shows.
A new Freedom of Information request by former pensions minister Sir Steve Webb reveals there are now over a million pensioners paying income tax at 40% or more.
There are currently 977,000 pensioners paying the higher rate of income tax, versus 455,000 people that were paying it in 2021/22.
The additional rate of income tax is paid by 115,000 pensioners now – but only 39,000 pensioners were subject to this levy in 2021/22.
In terms of the basic tax rate, around 8.5million pensioners now pay this, compared to almost 6.3million in 2021/22.
The income tax personal allowance is £12,570 a year – this is the amount you can earn before you start to pay tax. For earnings between £12,570 and £50,270, you pay 20% tax.
You then pay the higher 40% rate on earnings between £50,270 and £125,140. The additional 45% tax rate applies on earnings above £125,140.
The increase in the number of people paying income tax comes after the personal allowance was frozen in March 2021 by the previous Conservative government. It is currently not set to be increased until March 2031.
The state pension alone is set to bust the personal allowance next April when it increases again in line with the triple lock promise.
The government this month promised that pensioners whose sole income is the state pension will not pay income tax when payments rise above the frozen personal allowance.
But Sir Steve, who is now a partner at pension consultants LCP, warned pension savers will still likely need to have bigger retirement pots to cover their future tax bill.
said: “Many people of working age may have expected that they would be basic rate taxpayers in retirement, but few will have expected to find themselves paying 40% or more out of their pensions in tax. But this is the norm now for over a million pensioners, with the number set to rise further.
“Those who are planning their retirement finances will increasingly need to allow for the fact that a significant chunk of the income they had planned to live on will be taxed at 40% or more, and for some that means more pension saving will be needed today to compensate.”
The Mirror has contacted the Treasury for comment.
