Up to 10m Pensioners May Face State Pension Tax by 2030

Up to 10 million pensioners could face income tax on their state pensions by 2030 if the UK Chancellor extends the freeze on tax thresholds in the upcoming Autumn Budget, according to analysis by a former pensions minister. The decision, expected to be announced by Rachel Reeves on Wednesday, would prolong the current £12,570 personal allowance until at least 2030, pushing more retirees into the tax net as state pension payments rise under the government's triple lock policy.

The freeze on income tax thresholds, in place since 2021, has already increased the number of pensioners paying tax from about 6.7 million in 2021 to 8.7 million this year. Extending it by two more years beyond the current 2028 end date would exacerbate this trend through fiscal drag, where rising incomes pull people into taxable brackets without adjusting the thresholds. Steve Webb, former Liberal Democrats pensions minister and now a partner at consultants LCP, projects that even with the minimum 2.5 percent annual state pension increase, 9.3 million pensioners, or three-quarters of all retirees, would pay tax by 2030. Higher inflation or wage growth could push that figure to 10 million.