A recent study indicates that approximately ten million retirees might face income tax obligations by the end of the decade if the current freeze on tax thresholds extends until 2030. Individuals typically enjoy a tax-free personal allowance of £12,570 per tax year, a level that has remained static since the 2021/22 tax period. While the freeze is initially slated to conclude in the 2028/29 tax year, there are discussions to prolong it to 2030, potentially impacting an additional 500,000 state pensioners, as per findings from former pensions minister and LCP partner, Steve Webb.
This development could lead to over 9.3 million pensioners being subject to income tax, representing about three-quarters of all pensioners, compared to the current 8.7 million. LCP warns that this number could swell to ten million pensioners facing income tax obligations by the decade’s end if inflation or wage growth accelerates in the upcoming years. The state pension undergoes an annual increase in April through the triple lock mechanism, pegged to the highest figure among earnings growth, inflation, or a minimum of 2.5%.
Anticipated adjustments in April 2026 suggest the full new state pension could rise from £230.25 to £241.30 weekly, reflecting a 4.8% wage increase. By 2027/28, even with a modest 2.5% triple lock rise, the new state pension is projected to surpass the tax threshold by 102%. Steve Webb emphasizes the impact of stagnant tax thresholds combined with inflation, potentially leading to a significant rise in pensioners paying taxes at higher rates. Despite these changes, most affected pensioners are unlikely to complete tax returns, with any dues typically managed through their private pensions or HMRC’s simplified assessment process.
