The number of income tax-paying pensioners has jumped, according to figures from HM Revenue & Customs (HMRC).
Between the tax years 2023-4 and 2024-5, there was a 660,000 increase in people over pension age who were income tax payers, from 7.85 million to 8.51 million.
Around two million more people are in this bracket than in 2020-21, when 6.47 million people over pension age were paying income tax.
Trends towards some older workers having a “phased” retirement and demographic changes may have an impact on the number of people who are liable for income tax in their later years.
Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at consultants Lane Clark & Peacock (LCP), said: “These new figures from HMRC are very timely and help to inform the debate about pensioners and tax.
“They show that a combination of frozen tax thresholds and significant increases in the state pension means the number of pensioners paying tax has continued to soar.
“But this is a continuation of a long-term trend which has seen the number of over-65s paying tax rise by around four million since 2010/11. For a pensioner in Britain, being an income tax payer is now the norm rather than the exception.”
Recent analysis from LCP indicated that just under 2.5 million pensioners across Britain receive state pensions which on their own are in excess of the personal tax allowance, at £12,750 per year.
The large majority of these are older pensioners on the “old” state pension system, who combine a basic pension with a significant earnings-related pension.
The Conservative Party manifesto contains a commitment to a triple lock plus – a proposal to ensure the personal allowance for income tax would rise in future in line with increases in the main rate of the new state pension.
The standard rate of the new state pension is around £11,500 per year.
With impeccable timing, HMRC have just published annual figures on numbers of pensioners paying tax. Number of people over state pension age paying tax rose by 660,000 in the last year from 7.85m to 8.51m…
— Steve Webb (@stevewebb1) June 27, 2024
A Conservative Party spokesman said last week: “Under the triple lock plus, the tax-free allowance for pensioners will rise in line with the fastest of prices, earnings or 2.5% – just like the state pension.”
Liberal Democrat Treasury spokeswoman Sarah Olney said of the HMRC figures: “Millions are being hammered by Rishi Sunak’s retirement tax.”
The Resolution Foundation said this week that the average pensioner is £900 better off as a result of benefit policy changes since 2010, while the average non-pensioner household is £1,400 worse off amid a less generous social security system for working-age families.
But while benefit policies have generally made pensioners better off, tax changes, such as the recent cuts to employee national insurance, have helped to rebalance the “winners” and “losers”, the think tank’s report said.
Looking at all permanent tax and benefit changes since 2010, the research found that pensioner households are £1,000 a year better off on average in 2024-25, while working-age households are £760 a year better off.