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Frozen income tax thresholds will see an estimated one in five pensioners dragged into paying higher or additional rate tax by 2028, new data has revealed.
The data from HM Revenue and Customs, obtained via a freedom of information (FOI) request by Quilter, shows 3.1 million will fall into the trap.
The analysis shows that 2.7 million people aged 60 and over will be brought into the higher rate of income tax in the tax years 2022-23 to 2027-28.
Meanwhile, nearly half a million will be brought into the additional rate. More than a third – 1.3 million – are aged 70 or over.
ONS population estimates show there are 16.8 million people aged 60 and over living in the UK.
This means the equivalent of almost an additional one in five are expected to be taxed at the higher or additional rate of tax.
Additionally, not everyone aged 60 and over will be paying income tax. Therefore, Quilter said the proportion of those who do pay income tax and are pulled into the higher and additional rates is likely to be even greater.
Jon Greer, head of retirement policy at Quilter, said: “The number of pensioners likely to pay higher and additional rates of income tax as a result of frozen thresholds is set to increase exponentially by 2028, and not only will this boost government coffers by stealth, but it looks likely that other tax increases are on the cards.
“With the Labour government’s first Budget now just over two months away, it is vital that people are managing their finances tax efficiently to help reduce their overall burden.”
Greer said those nearing retirement or semi-retired and still working should look to maximise their pension contributions as this can sometimes help avoid tipping over into a higher income tax bracket.
“They are especially beneficial for higher rate taxpayers, as you can currently receive up to 40% tax relief on your contribution but will often only pay the basic rate of 20% when you withdraw the money in the future,” he added.
“Pensions provide the most tax-efficient way of saving for retirement, so it is important that people are aware of their annual allowance amount and that all who can afford to utilise it do so.”
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