The new year is fast approaching, and with it, some alarming changes for pensioners. HM Revenue & Customs (HMRC) is set to impose a 62% tax rate on certain pensioners starting in 2026, with nearly 80,000 pensioners expected to be affected. This increase is part of a broader trend that’s leaving more retirees in higher tax brackets, adding further strain on their income. Let’s take a closer look at why this is happening and what pensioners can expect as the tax burden grows.
The reality of paying income tax is frustrating for anyone, but for pensioners, it can feel like a double hit after years of contributing to the system, some are now facing a steep tax rate on their retirement income. According to HMRC data, 38,000 pensioners faced a 62% tax rate in the 2021/2022 tax year. Fast forward two years, and that number has more than doubled to 77,000. By 2026, this figure is expected to grow significantly, impacting pensioners earning between £100,000 and £125,140.
One key factor is the Personal Allowance, which is currently set at £12,570 meaning that income below this threshold is tax-free. However, for pensioners with income above £100,000, the Personal Allowance is phased out, leaving them facing a higher tax rate.
How HMRC’s 62% Tax Rate Will Affect Pensioners in 2026?
In 2026, nearly 725,000 people will fall into the 62% tax bracket, a significant jump from previous years. By 2028/2029, this number is expected to climb to a staggering 850,000 pensioners. This shift is due to a combination of factors, including the freeze on income tax bands and the gradual reduction of the Personal Allowance as income rises.
In particular, one of the major changes is a State Pension reform that could see even more state pensioners being forced to pay tax on their income. As Craig Rickman, a pensions expert at Interactive Investor, points out:
“With the deep freeze on income tax bands set to endure until 2028/2029 and fears the Government could extend it even further, thousands more people above state pension age will be hit with punitive rates of tax on some of their income.”
This freeze on tax bands means that pensioners’ income will be taxed at higher rates as inflation pushes their income above thresholds, without any adjustments to the bands to reflect that.
Uncanny Changes Lead to Uncanny Results
The growing tax burden is leading some pensioners to rethink their plans for retirement. For many high earners, the 62% tax rate could make staying in work more financially attractive than retiring. Higher tax rates may also prompt some pensioners to delay retirement or return to work altogether in order to bridge the income gap caused by the tax burden. In extreme cases, some high earners may even opt for unemployment to avoid the hefty tax hit.
“However, there’s a risk that ultra-high tax rates could mean losing older talent. As taxes take an even bigger bite from the cherry, many older high earners will weigh up whether they’re better off stepping back and earning less, rather than risk facing such a heavy tax burden.” – Rickman
The economy, and specifically the NHS, could feel the effects of this loss of skilled, experienced workers, further straining sectors that already rely on a high proportion of older workers.
What Pensioners Can Expect Going Forward?
The freeze on income tax bands, combined with the reduction of the Personal Allowance, will continue to impact a growing number of pensioners as the years go on. For those already earning above £100,000, the tax burden is expected to increase significantly, and for others, the effects may soon be felt as more people move into taxable income brackets.
As the Autumn Budget 2025 approaches, experts are speculating about further changes that could compound these challenges. Chancellor Rachel Reeves has already signalled potential reforms to Inheritance Tax, which could have an additional domino effect on pensioners and their families.
Disclaimer
This article is for informational purposes only and does not constitute tax advice. It does not replace HMRC’s guidance or official notices. To confirm your eligibility or payment status, click the HMRC‑linked resources in our article or log in to your HMRC online account; for personalised advice, consult a qualified tax professional.
FAQs
Why will pensioners face a 62% tax rate in 2026?
Pensioners earning between £100,000 and £125,140 will see their Personal Allowance reduced, leading to an effective tax rate of 62% on some of their income.
How many pensioners will be affected by this 62% tax rate?
In 2026, nearly 80,000 pensioners will face this tax rate, and by 2028/2029, that number could rise to over 850,000.
Why are the tax bands being frozen?
The income tax bands have been frozen to 2028/2029, meaning that as inflation pushes incomes higher, more people will fall into higher tax brackets without the tax bands being adjusted.
What State Pensioners May Face?
State pensioners may face increased taxes on their income in 2026, as more people will be pushed into the taxable income bracket.
How could these tax changes impact retirement plans?
The higher tax rates may prompt some pensioners to delay retirement, return to work, or even avoid earning above certain thresholds to minimize the tax burden.