The number of pensioners paying a paltry 60 per cent income tax rate has more than doubled in just three years as frozen tax thresholds pull tens of thousands more older savers into higher tax brackets.
New figures from HM Revenue & Customs show that around 77,000 people aged 66 and over fell into the “60 per cent tax trap” in the last tax year – up from 38,000 in 2021-22.
The high rate applies to anyone earning between £100,000 and £125,140 a year. Within this range, individuals will lose 60p of every additional pound earned, as the personal tax allowance of £12,570 decreases once income exceeds £100,000.
The threshold has been frozen since 2010 and, had it kept pace with inflation, would now be around £155,000. Analysts say this freeze – along with the broader “fiscal burden” caused by static tax brackets – has pushed a growing number of workers and pensioners into penalty tax brackets.
Craig Rickman, personal finance editor at Interactive Investor, who obtained the data through a Freedom of Information request, said the figures reveal “the punishing impact of the 60 percent tax trap on older workers and retirees.”
“Today more people are working well into their late 60s,” he said. “But there is a real danger that extremely high tax rates could force experienced workers out of the labor market – precisely when the economy needs their skills most.”
Under the rules, taxpayers lose £1 of their personal allowance for every £2 of income over £100,000. The allowance will be withdrawn entirely once earnings reach £125,140. In combination with the 40 percent higher tax rate, the effective marginal tax rate is 60 percent.
For example, someone earning £100,000 and receiving a pay rise of £10,000 would pay £4,000 of income tax on the increase – but would also lose £5,000 of their personal allowance, increasing their tax liability by a further £2,000. In total they would pay £6,000 – or 60% – on that extra £10,000.
The increase in the number of over-65s facing high tax burdens also reflects the growing number of pensioners drawing larger amounts from their pension funds. Withdrawals have risen sharply since Chancellor Rachel Reeves announced plans to include pensions in the inheritance tax balance from April 2027.
According to the Financial Conduct Authority, £70.9 billion was withdrawn from pensions for the first time in 2024-25 – a rise of 36 per cent on the previous year.
Tom Selby, director of public policy at AJ Bell, said: “Including pensions in the inheritance tax increases the incentive for wealthier pensioners to spend their money earlier. This is likely a factor in dragging more pensioners into the 60 per cent tax band.”
Tax thresholds have not been raised since 2021, meaning wage increases are moving millions more taxpayers into higher brackets each year. The Office for Budget Responsibility has warned that if freezes continue by 2030, 4.2 million more people will pay income tax and 3.5 million more will become taxpayers at higher or additional rates.
The freezes are also extremely lucrative for the Ministry of Finance. The Institute for Fiscal Studies estimates they will raise £40 billion a year by 2027-28 – equivalent to almost a 4p increase in the property tax rate.
Under current policy, the thresholds will be raised again in 2028-29, but speculation is growing that Reeves may extend the freeze as part of her search for new revenue ahead of the November 26 budget.
For many pensioners, that would mean spending more years in one of Britain’s toughest – and most politically explosive – tax traps.
