New research indicates that approximately ten million pensioners could potentially be subjected to paying income tax by the end of the decade if the freeze on tax thresholds is extended until 2030. Under the current system, individuals can earn up to £12,570 each tax year before becoming liable for income tax, known as the personal allowance, which has remained static since the 2021/22 tax year.

There are considerations to prolong the freeze on income tax thresholds until 2030, leading to an additional half a million state pensioners falling under the tax bracket, as highlighted by former pensions minister and LCP partner, Steve Webb. This adjustment would see a significant increase in the number of pensioners paying income tax, with estimates projecting around 9.3 million pensioners being affected by this change, compared to the current figure of approximately 8.7 million.

LCP suggests that the number of pensioners paying income tax could swell to ten million by the end of the decade if inflation or wage growth accelerates in the forthcoming years. The triple lock mechanism guarantees an annual increase in the state pension based on the highest of earnings growth, inflation, or a minimum of 2.5%. The new state pension is anticipated to rise from £230.25 to £241.30 per week in April 2026, reflecting a 4.8% wage growth.

Notably, the new state pension was previously aligned with three-quarters of the tax threshold; however, projections indicate that by 2027/28, it could surpass the tax threshold even with a modest 2.5% triple lock increase. Steve Webb emphasizes that a combination of frozen tax thresholds and high inflation could lead to a substantial number of pensioners falling into the tax bracket, potentially reaching 10 million by the decade’s end. Furthermore, most pensioners will not require filing tax returns, as any owed taxes will typically be collected through their private pensions or via the ‘simple assessment’ process administered by HMRC.