Around 3.1 million pensioners could be brought into the higher or additional rate tax band by the 2027/28 tax year due to the Government’s frozen income tax thresholds, Quilter's analysis of freedom of information data from HMRC has revealed.

The analysis showed 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, while nearly half a million will be brought into the additional rate.

More than a third of those, around 1.3 million people, are 70 or over.

Quilter pointed out that population estimates from the Office for National Statistics showed there are 16.8 million people aged 60 and over living in the UK, meaning an additional one in five are expected to be taxed at the higher or additional rate of tax due to the Government’s frozen tax thresholds increasing tax by stealth.

The group also highlighted that not everyone aged 60 and over will be paying income tax, meaning the proportion of those who do pay income tax and are pulled into the higher and additional rates is likely to be even greater.

While the Chancellor has confirmed that tax increases are on the cards in October’s Budget, Quilter said that, given the Labour Government has promised not to change income tax rates, a decrease is unlikely, meaning more people will end up paying higher tax rates.

Quilter head of retirement policy, Jon Greer, said: “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.

“Those nearing retirement or semi-retired and still working should look to maximise their pension contributions whenever possible. Pension contributions can sometimes help you 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.

“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.

“For those who are already withdrawing from their pension, it is important to only take as much money as you need each tax year as the less you withdraw, the less income tax you will pay. Similarly, it is important to remember how much pension income you will have, including your state pension income as it is also taxable.”

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