The income tax paid by people in retirement has risen by over 40% in two years, according to new data from HMRC.
In 2024/25 (the latest year reported) retirees paid £29.8bn in income tax, in comparison to £21.1bn in the 2022/23 tax year.
The cost of income tax relief on pensions has also soared from £47.8bn in 2022/23 to £60.4bn in 2024/25, an increase of a quarter.
The latest HMRC figures show that between April and June 2026 more than 12,500 people had to reclaim tax after accessing their pension flexibly, with more than £50.3m repaid in the second quarter of the year. While the number of reclaim forms is down marginally compared with the same period last year, the total amount repaid has jumped by nearly £2m.
The average repayment was just under £4,000.
One of the reasons retirees are paying more tax is fiscal drag combined with the freezing of personal allowances. HMRC figures show that in 2022/23 the number of pensioners paying tax was 7.1m in 2022/23, in comparison to 9.6m in 2026/27. As more retirees get caught in the net, it is driving up the total tax take from pensioners.
Steve Webb, partner at LCP and former Pensions Minister, said that despite the rising cost to the Government of pension tax relief, it is unlikely to make any changes.
He said: “The constant freezing of tax thresholds and allowances has dragged millions more people into paying higher rates of income tax. The flip side of this is that when they pay into a pension they get more tax relief, leading the cost of tax relief to soar. But frozen personal allowances mean that the number of pensioners paying income tax has also written steeply, and the tax bill on pensioners is up dramatically.
“In all the discussion about fairness between generations it is important to remember that pensioners are also paying growing amounts back to the Exchequer, paying around £30bn in income tax on their pensions in the latest figures.
“Although the Government may be tempted to slash tax relief to reduce this rising cost, the politics become very difficult half way through a Parliament. Any change would be complex and technical and could take years to implement. It would deliver little money this side of the next election but would be hugely politically unpopular. The Government may well conclude that it simply has to live with the rising cost of tax relief for now.”
The cost of pension tax relief is greater for higher rate taxpayers (who get relief at 40%) than for basic rate taxpayers (who get relief at 20%). As the number of higher rate taxpayers increases because of freezes in the higher rate threshold, so does the cost of tax relief.
The latest HMRC figures show an increase to 7.7m higher rate taxpayers in 2026/27 from 2022/23 when it was 5.1m. This suggests that the cost of tax relief will have risen further in the last couple of years which are not yet reflected in the published statistics.