A single pensioner now needs a pre-tax income of £54,720 to enjoy a comfortable retirement, leading to an income tax bill of £9,320 in 2025-26, according to the latest calculations from Pensions UK.
The trade body said a post-tax income of £45,400 is required to maintain a “comfortable” standard of living. Five years ago, a pensioner would have paid £5,058 in tax to achieve the same lifestyle, meaning the tax burden has risen by £4,262.
Rising costs and frozen thresholds
The increase reflects both higher living costs and the continued freeze on income tax thresholds.
Pensions UK defines a comfortable retirement as one that allows for discretionary spending, including:
- An annual two-week holiday in Europe.
- Around £78 a week for groceries.
- About £66 a week for takeaways or meals out.
According to the latest Retirement Living Standards report, cost pressures including higher energy bills and food inflation have pushed up the post-tax income required for this lifestyle by roughly £250 a week since 2019.
Income tax thresholds have remained unchanged since 2020-21. Chancellor Rachel Reeves confirmed last year that they would stay frozen until April 2031.
The policy has accelerated so-called fiscal drag, pulling more workers and pensioners into paying tax as incomes rise.
More pensioners expected to pay tax
Forecasts from the Office for Budget Responsibility indicate that an additional 600,000 pensioners will become liable for income tax in 2026-27. By 2030-31, that number is expected to reach one million.
Those pensioners are forecast to pay an extra £100 million in income tax by 2030-31, implying an average additional bill of £100.
The new full state pension is expected to exceed the tax-free personal allowance from next April.
Charlene Young, of investment platform AJ Bell, said the triple lock had helped support pension incomes but left little room within the personal allowance for other sources of retirement income.
“That leaves little wriggle room for income from pension savings, which will be subject to income tax after any tax-free cash has been taken,” she said.
Young added:
“A decent retirement has got a lot more expensive, and the taxman is also set for a windfall thanks to fiscal drag. The big threshold squeeze is now set to last at least a decade, dragging millions into paying more tax than they would if tax allowances had kept pace with the cost of living.”
Treasury position
Following last November’s Budget, the Chancellor said no pensioner receiving only the new state pension would pay income tax.
The Treasury has not confirmed how that commitment would operate in practice or which pensioners would be covered.
A Treasury spokesman said:
“Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament.
“By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7.”
TL;DR:
A single pensioner now needs £54,720 before tax to enjoy a comfortable retirement, resulting in a £9,320 tax bill in 2025-26. Pensions UK says rising living costs and frozen tax thresholds have nearly doubled the tax burden since 2020-21.
AI summary:
- Pensions UK says a comfortable retirement requires £45,400 after tax.
- Pensioners need £54,720 before tax, generating a £9,320 tax bill.
- The tax burden has risen by £4,262 since 2020-21.
- Frozen tax thresholds are expected to bring more pensioners into paying income tax.
- The Treasury says those receiving only the full state pension will not pay income tax.
