One Million More Pensioners to Pay Income Tax Following Threshold Freeze
London, 5 March 2026 – New forecasts from the Budget watchdog have revealed that an additional one million pensioners will be drawn into the income tax net by 2031. This “stealth” increase is a direct consequence of the Government’s decision to maintain the freeze on personal tax thresholds, despite rising inflation and annual increases to the State Pension.
The Impact of Frozen Thresholds
The Chancellor, Rachel Reeves, has confirmed that the Personal Allowance—the amount of income an individual can receive before paying tax—will remain fixed at £12,570 until April 2031. While this figure has remained static since 2021, the State Pension continues to rise under the “Triple Lock” mechanism. As the pension amount climbs closer to the frozen £12,570 limit, a record number of retirees are finding their income exceeding the tax-free threshold for the first time.
Recent data suggests that 41% of adults are unaware that the State Pension is a taxable source of income. For many, this will result in unexpected tax bills or deductions from other private pension providers to cover the liability.
Key Tax Figures and Forecasts
The following table outlines the current tax landscape for the 2025/26 and 2026/27 tax years, as thresholds remain locked under current Treasury policy.
| Category | Details |
|---|---|
| Personal Allowance | £12,570 (Frozen until April 2031) |
| Basic Rate Tax | 20% on income between £12,571 and £50,270 |
| Higher Rate Threshold | £50,270 |
| Additional Rate Threshold | £125,140 (Personal Allowance reduced to zero) |
| New Taxpayers Forecast | 1,000,000 additional pensioners by 2030-31 |
The “Stealth Tax” Debate
Critics have described the move as a “stealth grab,” arguing that poorer pensioners are being penalised by the effects of fiscal drag. By not raising the Personal Allowance in line with inflation, the Government effectively collects more revenue without technically raising the headline rate of tax. While some Government sources suggest that those whose only income is the State Pension may be protected from immediate bills, the specific mechanisms for this relief have yet to be fully detailed.
Frequently Asked Questions
Is the State Pension taxable?
Yes. Although National Insurance is not paid on income after reaching State Pension age, the pension itself is subject to Income Tax if your total annual income exceeds the Personal Allowance of £12,570.
What is fiscal drag?
Fiscal drag occurs when tax thresholds are frozen while wages or pensions rise. This “drags” more people into higher tax brackets or into the tax system for the first time, increasing the overall tax burden without changing the tax rates.
When will the Personal Allowance increase?
Under current legislation and recent Budget announcements, the Personal Allowance is scheduled to remain at £12,570 until at least 5 April 2031.