The number of pensioners paying higher rate tax in the UK has more than doubled in five years, reaching 1.092 million in 2026/27, according to a Freedom of Information request submitted by LCP partner Steve Webb. The figure stood at 494,000 in 2021/22, meaning the cohort has grown by more than 120% in half a decade. Over the same period, the number paying the highest 45% rate has roughly trebled.
For anyone managing a pension pot in drawdown, or approaching the point at which state pension and private income combine, these figures deserve careful attention. Frozen income tax thresholds have pulled a growing share of pension income into the 40% and 45% bands, a process sometimes described as fiscal drag. It requires no active decision by government to raise a tax rate: thresholds simply stand still while incomes rise.
What Pensioners Paying Higher Rate Tax Should Consider Now
The practical implication for self-invested personal pension (SIPP) holders is that drawdown sequencing matters more than ever. Taking income beyond the personal allowance and basic-rate band in a single tax year can trigger a higher rate charge on the excess, even if total lifetime savings are modest by some measures. Spreading withdrawals across tax years, utilising an ISA alongside a SIPP, and making use of a spouse or partner’s unused allowances are all worth reviewing with a qualified adviser.
The risk is not merely the headline rate. A pensioner drawn into the 40% band also loses access to higher personal savings allowances and may face tapered reductions in other reliefs. Over a five-to-ten-year retirement income plan, even a modest reduction in annual net income compounds into a material shortfall relative to original projections.
Social Care Costs Add a Further Layer of Planning Complexity
The picture is further complicated by the approaching Budget from Prime Minister Andy Burnham, which Money Marketing editor Tom Browne notes is bringing renewed focus to financial planning for social care. Burnham delivered a speech on social care on 29 July 2026 in Golders Green, setting out the government’s direction of travel. As part of that agenda, the government has agreed a fair pay agreement for social care staff, due to come into effect in the financial year 2028-29. Higher staffing costs in the sector could, over time, feed through into residential and domiciliary care fees, a consideration that sits squarely within long-term retirement income planning.
For someone in or approaching drawdown, the confluence of rising tax exposure and potentially higher future care costs places a premium on preserving flexible capital. Liquidity matters: assets locked in illiquid structures or concentrated in a single income stream leave little room to respond to a change in circumstances.
Market Volatility and the Smoothed Funds Question
Separately, research from Wesleyan published in the same briefing period shows that seven in ten financial advisers expect to increase their use of smoothed funds over the next twelve months, with 88% citing recent market volatility as a factor making such funds more suitable for certain clients. Sequence-of-returns risk, the danger that a sharp market fall early in retirement depletes a drawdown pot permanently, is a well-established concern; smoothed funds attempt to reduce that volatility, though they do so by deferring rather than eliminating it.
On the platform side, FNZ has appointed Maarten Heukshorst as its new head of client management and business development in the UK. Heukshorst brings more than 25 years of senior commercial experience across financial services, having previously held roles including chief commercial officer at Centralis Group, chief executive at Custodiex, and chief commercial officer for BNY Mellon Pershing EMEA.
The LCP data on pensioners paying higher rate tax is a concrete prompt for a review: the government’s fair pay agreement for social care staff, due in 2028-29, adds a further dated cost pressure worth factoring into any long-range income plan.
