UK pensioners face higher taxes as allowance freeze pushes them up brackets

New HMRC data released on 31 July 2026 shows that retired people in the United Kingdom paid about £8 billion more in income tax last year after a freeze on personal tax allowances pushed many into higher tax bands. The total tax paid by retirees rose from £21.1 billion to £29.8 billion – an increase of more than 40 percent in two years – a phenomenon described by analysts as “fiscal drag”.

Steve Webb, a partner at LCP and former pensions minister, said the constant freezing of thresholds has drawn millions into higher‑rate tax brackets and inflated the cost of tax relief on pensions, which climbed from £47.8 billion in 2023/24 to £60.4 billion in 2024/25. He warned that altering the system would be technically complex and politically unpopular, so the government is likely to accept the rising expense for now. The number of higher‑rate taxpayers reached 6.6 million, while pension participation remained strong, with about 90 percent of eligible workers (roughly 22.6 million) contributing to workplace pensions in 2025.