Pension alert: Number of retirees paying highest rates of tax DOUBLES in five years

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Britons are being reminded to check their tax liabilities as soon as possible to avoid a shock tax bill in the years ahead

The number of pensioners paying the highest rates of tax has doubled in the last five years, according to damning new data from HM Revenue and Customs (HMRC).

Based on the tax authority's figures, the number of retirees falling into the highest tax brackets has climbed from 494,000 in the 2021/22 tax year to 1,092,000 in 2026/27.

Concerningly, for thousands of older households, those paying the top 45 per cent rate have roughly trebled over the same period.

The data, uncovered by LCP partner Sir Steve Webb, confirmed that more than one million pensioners in the UK are now paying the highest amounts in income tax.

Analysts note the the sharp rise has been driven by a toxic combination of frozen tax thresholds and inflation-linked pension increases, which together have swept hundreds of thousands of retirees into higher tax brackets they never anticipated entering.

Since 2021, the personal allowance has sat unchanged at £12,570, while the threshold at which the 40 per cent rate kicks in has remained fixed at £50,270.

Meanwhile, the additional rate was not merely frozen but actively lowered; reduced from £150,000 to £125,140 from the 2023/24 tax year onwards.

Throughout this five-year freeze, state pensions and many occupational schemes have continued to rise in line with inflation, pushing pensioner incomes upward against tax boundaries that have refused to budge.

The effect has been twofold: not only have more retirees been pulled into paying tax for the first time, but growing numbers have been dragged beyond the basic rate altogether and into the higher and additional rate bands.

Mr Webb, who held the pensions brief in the Conservative-Liberal Democrat coalition Government, 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 per cent 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."

He warned that those mapping out their finances for later life must now factor in a substantial portion of their expected income being taxed at 40 per cent or above.

The former Pensions Minister added: "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 per cent or more, and for some that means more pension saving will be needed today to compensate."

The full new state pension currently stands at £12,547.60, a mere £23 below the personal allowance. Analysts have warned that even a single above-inflation uprating could, for the first time, leave pensioners with no other income facing a tax bill.

Des Cooney, a retirement planning specialist at Axis Financial Consultants, urged pensioners to act now: "The practical step right now is to check your tax code and ensure HMRC has an accurate picture of all your income, so there are no unexpected bills arriving after April."