As many as three million pensioners could be dragged into higher rates of income tax because of state pension increases and the Government’s freeze on thresholds, official data shows.
The recent cut to the top income tax bracket and frozen bands mean 2.3 million over-60s will enter the 40pc tax bracket over the next four years, while almost half a million will be brought into the additional rate of 45pc.
This equates to one in five people in this age group who will soon be taxed at the higher or additional rate, according to wealth manager Quilter, which obtained the statistics in a Freedom of Information request.
Labour has confirmed plans to keep the personal allowance and higher rate band stuck at £12,570 and £50,270 respectively until 2028, dragging more of the public into paying tax, or into paying tax at a higher rate in a process known as fiscal drag.
The 45pc bracket was also cut from £150,000 to £125,140 in 2023, pulling thousands more into the net. The cut is also set to remain in place until 2028.
Labour has refused to match the Conservatives’ “triple lock plus” election pledge that would see pensioners’ tax-free allowance increase every year with the triple lock, thus preventing them from paying tax on the state pension.
This comes after Chancellor Rachel Reeves scrapped winter fuel payments for 10 million retirees who do not receive pension credit.
Laura Trott, shadow chief secretary to the Treasury, said: “Not only has the Government chosen to line the pockets of their union paymasters over helping pensioners heat their homes, but pensioners will now be dragged into the retirement tax, so for the first time in history, they are forced to pay income tax on their state pension.
“As we warned, the Government had always planned to hike taxes and pensioners will be first in line to take the hit.
“We urge Labour to adopt our plans to introduce the triple lock plus that will ensure the state pension remains tax-free, ensuring dignity and security in retirement for millions of pensioners.”
The triple lock sees the state pension rise annually by the highest of 2.5pc, inflation or wage growth. Since 2021, the full state pension has leapt from £9,339 a year to £11,502 in 2024.
Yet the personal allowance has been cut in real terms during that time.
As a result, the number of people over the state pension age paying income tax has soared from 6.7 million in 2021-22 to 8.5 million today, according to data from HM Revenue and Customs.
The tax burden of retirees has been growing ever since the introduction of the so-called “granny tax” under George Osborne.