Millions more pensioners are paying income tax than just two years ago, with the amount handed to HMRC by those above state pension age soaring to almost £30 billion, according to new government figures.
Fresh HMRC statistics show pensioners paid £29.8 billion in income tax in 2024/25, up from £21.1 billion in 2022/23 – a rise of more than 40% in just two years.
At the same time, the cost of pension tax relief has also surged, climbing from £47.8 billion to £60.4 billion over the same period – an increase of around 26%.
The figures show:
- Income tax paid by pensioners: £21.1bn (2022/23) → £29.8bn (2024/25) (+41%)
- Cost of pension tax relief: £47.8bn (2022/23) → £60.4bn (2024/25) (+26%)
- Pensioners paying income tax: 7.1 million (2022/23) → 8.8 million (2024/25) → 9.6 million (2026/27)
- Higher-rate taxpayers: 5.1 million (2022/23) → 6.6 million (2024/25) → 7.7 million (2026/27)
Both trends are being driven largely by fiscal drag – where frozen tax thresholds pull more people into paying tax or into higher tax bands as incomes rise.
The increase in higher-rate taxpayers has also pushed up the overall cost of pension tax relief, as higher-rate taxpayers receive 40% tax relief on pension contributions compared with 20% for basic-rate taxpayers.
Former pensions minister and LCP partner Steve Webb said: "The constant freezing of tax thresholds and allowances has dragged millions more people into paying higher rates of income tax. The flip side of this is that when they pay into a pension they get more tax relief, leading the cost of tax relief to soar."
He added: "But frozen personal allowances mean that the number of pensioners paying income tax has also written steeply, and the tax bill on pensioners is up dramatically.
"In all the discussion about fairness between generations it is important to remember that pensioners are also paying growing amounts back to the Exchequer, paying around £30bn in income tax on their pensions in the latest figures."
The figures are likely to fuel speculation ahead of the next Budget over whether the government could look again at pension tax relief to reduce its growing cost.
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However, Webb believes major changes remain unlikely before the next general election.
He said: "Although the Government may be tempted to slash tax relief to reduce this rising cost, the politics become very difficult half way through a Parliament."
He continued: "Any change would be complex and technical and could take years to implement.
"It would deliver little money this side of the next election but would be hugely politically unpopular. The Government may well conclude that it simply has to live with the rising cost of tax relief for now."
