One Million More Pensioners to Face Income Tax Due to Frozen Thresholds
Up to one million additional pensioners will be drawn into paying income tax as a direct consequence of frozen tax thresholds, according to new forecasts from the budget watchdog. The Office for Budget Responsibility's forecast, published for Chancellor Rachel Reeves' spring statement on Tuesday, indicates that 600,000 more pensioners than previously estimated will face income tax by 2026-27, with that figure escalating to one million by 2030-31.
The Mechanism Behind the Tax Increase
While the state pension is subject to income tax, individuals whose sole income derives from it have historically avoided payments. This is because the full state pension, currently £230.25 per week, falls below the annual personal tax allowance of £12,570. However, in her November 2025 Budget, Chancellor Rachel Reeves extended a freeze on the personal allowance until 2031.
For the first time since its introduction, the full new state pension is set to exceed the personal allowance in the 2027-28 tax year under the triple-lock policy guaranteeing increases in line with inflation, earnings, or 2.5 percent. HM Revenue and Customs has updated its modelling of the impact of the threshold freezes on those whose main source of income is the state pension, the OBR said.
Updated Modelling and Financial Impact
Some pensioners with additional income streams will already be paying tax ahead of 2027-28, according to the watchdog. The updated modelling of this population across all personal tax threshold freezes since April 2021 increases the estimate of the number of people brought into paying tax by 600,000 in 2026-27 and one million in 2030-31, the OBR wrote.
However, much of this population is projected to pay only very small additional amounts of tax due to the freezes, so this only increases the yield of the November 2025 Budget measures by £0.1 billion in 2030-31. The OBR also noted that the Government has pledged to exempt those whose only income is the state pension from paying income tax on it in this Parliament, but has yet to set out details.
Political Reactions and Criticism
The Government confirmed its aim to exempt those relying on the state pension and to detail that policy well before the April 2027 change. Despite this, the Liberal Democrats said Ms Reeves must set out how pensioners will be protected from these stealth taxes immediately.
The party's Treasury spokesperson Daisy Cooper said: Buried in the small print of today's spring statement is a shock stealth grab hitting another one million pensioners. For poorer pensioners, every penny counts, and these unfair tax hikes could be the final straw.
Cooper added: Rachel Reeves must urgently explain how she will protect older poorer pensioners from this stealth tax squeeze. Pensioners have worked hard all their lives, paid into the system and played by the rules. Poorer pensioners should not be made to pay the price for this Labour Government's economic failure.
This development highlights the ongoing debate over tax policy and its impact on vulnerable groups, with critics labelling it a stealth tax grab that could disproportionately affect lower-income pensioners.
