An additional 1.5m State Pensioners are set to pay income tax this year, according to data released this week by HMRC and analysed by financial services consultancy Broadstone.
The data estimates that for 2023/24 there were 8.16m Income Tax payers over the State Pension Age, an increase of over a million on the previous year (7.13m for 2022-23).
HMRC also projects that for this tax year, 2026-27, there will nearly be an additional 1.5m Income Tax payers over State Pension Age, with the total number of State Pension holders paying income tax estimated to reach 9.58m.
If the forecasts are correct it will mean nearly 2.45m more State Pensioners are paying income tax this year compared to 2022.
{loadoposition hidden2}
The Personal Allowance Income Tax threshold has been frozen at £12,570 since April 2021, with the Chancellor recently extending this freeze until April 2031. This has been one of the main drivers of more State Pension holders being caught in the income tax net.
David Brooks, head of policy at leading independent financial services consultancy Broadstone, said: "As the value of the State Pension continues to increase, it is inevitable that more pensioners will pay Income Tax.
"While this may feel unfair to some retirees whose income comes largely from the State Pension, taxation is increasingly becoming the most cost-effective way for government to distinguish between those with more and less retirement income while preserving the universal nature of the State Pension.
"Pensioners are not a uniform group and, while some rely heavily on the State Pension, many benefit from occupational and private pension savings built up over decades. The policy challenge should not be preventing pensioners from ever paying tax, but reducing pensioner poverty and ensuring support is targeted at those who need it most.
“For example, Pension Credit continues to provide an important safety net for those on the lowest incomes and remains a key tool in tackling hardship in retirement. However, hundreds of thousands of eligible, low-income pensioners are missing out on this vital additional financial support.
“As State Pension costs continue to rise alongside an ageing population, the Government must balance maintaining adequate retirement incomes with the need to ensure the system remains sustainable and fair to all taxpayers."