A recent study indicates that approximately ten million pensioners could be impacted by income tax if the current freeze on tax thresholds continues until 2030. Most individuals are allowed a tax-free allowance of £12,570 per tax year, a limit that has remained unchanged since the 2021/22 tax year. There are plans to extend the freeze until 2030, potentially affecting an additional half a million state pensioners.
According to the analysis by former pensions minister Steve Webb, if the freeze is extended, the number of pensioners paying income tax could rise to around 9.3 million, representing three-quarters of all pensioners. This figure might escalate to ten million by the end of the decade if inflation or wage growth accelerates in the future.
The state pension typically increases annually in line with the highest of earnings growth, inflation, or 2.5%. The full new state pension is anticipated to rise to £241.30 per week in April 2026, a result of a 4.8% wage growth. The state pension amount is projected to exceed the tax threshold by 2027/28.
Steve Webb from pension consultants LCP highlighted concerns about the increasing number of pensioners being subjected to income tax due to frozen thresholds. If the freeze continues, more pensioners could be affected, potentially reaching 10 million by the decade’s end. The majority of current pensioners could surpass the income tax threshold, with many not needing to file tax returns as HMRC can collect any tax owed through existing information.