𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Pensioners are paying an eye-watering £30billion a year in income tax, new figures show. The amount handed to the taxman by retirees has soared from £21.1billion in 2022/23 to £29.8billion in 2024/25, according to HM Revenue and Customs (HMRC).

This is largely due to frozen tax thresholds, which are pushing more people into higher tax brackets or into paying income tax.

But it also means that the Government is facing higher costs for income tax relief on pension contributions, which are tax-free up to certain limits, up from £47.8billion in 2022/23 to £60.4billion in 2024/25.

This is because there are more people being pulled into the higher tax rate, where relief is 40%, compared to 20% for basic-rate taxpayers.

Former pensions minister Sir Steve Webb, who is a partner at pensions consultancy Lane Clark and Peacock, 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 risen 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 £30billion 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.”

Separate HMRC figures from earlier this month show that the number of pensioners paying income tax has jumped from 7.1million in 2022/23 to 9.6million in 2026/27.

It comes as the tax-free personal allowance has been frozen at £12,570 since 2021/22, while the state pension has increased due to the triple lock policy.